Fitch downgrades Maldives' credit rating
By 2026, Maldives' debt will reach 117.6% of GDP.
By
Ahmed Naif
Fitch, the world's most trusted credit rating agency, has downgraded the country's rating, saying there is a high possibility of defaulting on outstanding debts to various foreign entities.
Fitch has downgraded Maldives' rating from B- to CCC+ after review. The rating means:
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A rating given to countries with a very high probability of defaulting on foreign debt
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Interest rates on bonds sold by such countries to raise money increase and people are less interested in investing in such bonds
Fitch cited increasing constraints on foreign funding and the risks posed by Maldives' deteriorating debt and financial fragility as the main reasons for the rating downgrade. Thus:
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Foreign exchange reserves have declined and it will be very difficult for Maldives to repay its foreign debts
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The dollar is appreciating against the Rufiyaa and the Rufiyaa is falling
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The current reserves would not be sufficient to pay even one month's worth of foreign payments; reserve money is enough for 0.9 months
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Cost-cutting measures have now been delayed for the last quarter of this year; this will make the situation more sensitive and the measures to be taken will be more difficult to implement
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By 2026, Maldives' debt will reach 117.6% of GDP
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An economic shock is likely to threaten Maldives' economic growth; the reason is the growing problem of high debt and climate change for tourism
Despite the rating downgrade, Fitch said the country could avoid the risk of default and transform its financial and debt situation to a more sustainable level if the government takes steps to boost revenue and take strong cost-cutting measures.
The Big Three credit rating agencies are S&P Global Ratings (S&P), Moody's, and Fitch Group. Fitch and Moody, both agencies review the rating annually.
