Male’, Maldives – Moody’s Investors Service (Moody’s), this Tuesday downgraded the Government of Maldives long-term local and foreign currency issuer and long-term foreign currency senior unsecured ratings to Caa1 from B3, while changing the outlook to stable from negative.
The downgrade from B3 to Caa1 is followed by the deterioration of fiscal strength beyond Moody’s initial expectations, stemming from the significant increase in the debt burden during the coronavirus pandemic, the prospect for large fiscal deficits in the coming years, and over time, the risk of higher interest costs associated with the debt burden and greater commercial borrowing. Mood’s foresee that even with a robust rebound in tourism arrivals in the coming quarters, the debt burden will only gradually decline on expectations that the government will maintain an expansionary, investment-driven fiscal policy that will repeatedly test the government’s access to a diverse set of funding sources.
Altough the credit rating was downgraded, Moody’s changed the outlook for the Maldives to stable from negative. According to Moody’s, this is because the risks to the Caa1 rating are balanced between these ongoing fiscal pressures with recent positive developments, such as the strengthening prospects of the tourism sector, which will support recoveries in growth and employment.
Moody’s states that the recent refinancing of the Eurobond maturing in 2022 by a sukuk issuance maturing in 2026 and improved foreign exchange liquidity due to the tourism recovery and bilateral support from China, India and others have also mitigated external liquidity risks.
With the downgrade in credit ratings, Maldives will face more difficulties in obtaining loans and earning money as the interest rate would be very high and it should be returned within a short period.