Fitch Ratings has affirmed Maldives' Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B-' with a Negative Outlook.
Fitch said that the 'B-' rating reflects a favorable GDP growth outlook, based on strong prospects for the tourism sector over the medium term, high per capita GDP relative to 'B' category peers, and continued bilateral and multilateral financing support facilitated by the country's geopolitical strategic importance.
It said that this is balanced against the country's high and rising government debt burden, low foreign-reserve buffers, and its vulnerability to shocks that could undermine prospects for the tourism industry.
Fitch also said that the Negative Outlook reflects the risk of heightened external financing and liquidity strains, which could imperil the currency peg to the US dollar amid rising external debt servicing, weakening foreign reserves, and tight global financial conditions.
The rating agency said that it expects foreign reserves to remain under considerable pressure in light of sizeable import bills on elevated energy and food prices, and continued intervention by the Maldives Monetary Authority (MMA) to support the currency peg.
It said that the MMA has drawn USD100 million on a USD200 million currency swap line with the Reserve Bank of India in December 2022. Gross foreign reserves fell by 16.6 percent in 8M23 to USD 694 million.
It estimated that foreign-reserve coverage of current external payments at 1.1 months in 2023, well below the projected 'B' median of 3.5 months.
In a positive update, Fitch forecasted the economy will expand by 7.2 percent in 2023 and average 6.6 percent in 2024-2025.
It said that it expects tourist arrivals will hit a record high of 1.9 million in 2023, or 11.6 percent above its 2019 level.
