Following the reassessment, Moody’s has published that the Maldives’ ratings, including its Caa2 long-term ratings, reflect a low – albeit improving level of foreign exchange reserves and limited financing in light of the upcoming external debt maturities.
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On 16 May 2025, Moody’s Ratings (Moody’s) completed a periodic review of the ratings of the Maldives and other ratings that are associated with the issuer. According to Moody’s review was conducted through a rating committee held on 8 May 2025, in which Moody’s re-assessed the appropriateness of the ratings in the context of the relevant principal methodologies, and recent developments.
Following the reassessment, Moody’s has published that the Maldives’ ratings, including its Caa2 long-term ratings, reflect a low – albeit improving level of foreign exchange reserves and limited financing in light of the upcoming external debt maturities. Moody’s also added that twin fiscal and current account deficits and a ramp-up in external borrowing with the implementation of large public sector infrastructure projects had driven the government's liquidity and external vulnerability risks, while further credit challenges stem from weak institutional capacity and significant exposure to environmental risks.
One such risk that the Maldives continues to face is its continued dependency on the tourism sector as a main source of income – which was challenged during the COVID-19 pandemic. During the disruption to the industry in 2020, the Maldives found itself in a significant shortfall in economic output and a surge in government debt. However, since the pandemic, the Maldives’ tourism industry has rebounded with an influx of tourists coming into the country annually, showcasing a strong recovery. This has continued to reflect healthy economic growth potential and a competitive tourism sector in the country.
Another issue that Moody’s highlights is that, despite a gradual uptick in foreign exchange reserves observed since October 2024, driven by external financing support and the implementation of foreign exchange reforms, the impending maturity of sizeable external debt obligations remains a significant credit concern for the Maldives.
To add to the challenges, volatile market sentiment, stemming from uncertain US economic policy, will further challenge the Maldives' ability to access international markets and secure financing from bilateral and private creditors to either refinance or repay these debts. Access to such external financing is crucial to mitigate external liquidity risks, as foreign exchange reserves continue to be eroded by wide current account deficits, despite the recent decline in fuel import prices.
Further, it was noted that while stronger foreign currency revenue generation through reforms and reductions in capital spending year-to-date could alleviate external financing needs, it is essential in their assessment of default risk to demonstrate that upcoming external debt obligations, such as the USD500 million sukuk maturing in 2026, will be reliably and comfortably repaid or refinanced.
Moody’s assesses the Maldives’ economic strength at "ba1", taking into account the country’s limited global competitiveness beyond the tourism sector, along with the heightened risk of economic disruption due to natural disasters and climate change vulnerabilities. The institutional and governance strength rating of "b3" reflects the inherent difficulties in developing robust institutional frameworks within a geographically dispersed small island nation.
The country’s fiscal strength, rated at "ca", reflects a significant weakening of fiscal indicators, largely driven by the economic shock of the COVID-19 pandemic. Moody’s emphasised that the pace and success of fiscal consolidation will hinge on the government’s commitment to reform, particularly given structural rigidities in subsidies and capital expenditure.
The "caa" rating for susceptibility to event risk is shaped by growing liquidity pressures, as the government faces high gross borrowing needs and substantial short-term domestic debt, which heightens refinancing risks.
The negative outlook assigned to the rating reflects elevated external liquidity pressures, as foreign exchange reserves remain under strain amid persistently wide current account deficits. While the government has enacted a series of reform measures aimed at strengthening foreign exchange management, uncertainty remains over the timing and effectiveness of these reforms in adequately boosting reserves to meet the Maldives' near-term external obligations.
Compounding these risks is the absence of a comprehensive financing strategy, leaving the country reliant on securing ad hoc bilateral and multilateral financial support to shore up external buffers.
According to Moody’s, an upgrade is unlikely in the near term. However, evidence of effective reform implementation, particularly in fiscal policy and foreign exchange regulations that support a sustained buildup of reserves, could contribute to stabilising the rating. Likewise, improved certainty and affordability of external financing flows would be considered credit positive.
On the other hand, Moody’s cautioned that a further downgrade could occur if default risks increase, either due to deteriorating access to external financing or if reforms fail to strengthen foreign currency inflows and stabilise reserves. A stall or reversal in fiscal consolidation efforts that leads to an expanding debt burden would also raise red flags and could trigger a negative rating action.
