Fitch Ratings has downgraded the Maldives' Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CC' from 'CCC+'. Fitch typically does not assign Outlooks to sovereigns with a rating of 'CCC+' or below.
Fitch said that the downgrade of the Maldives' IDRs to 'CC' reflects Fitch's assessment that intensified pressures from the country's recently deteriorating external financing and liquidity metrics have made a default event more likely within the rating horizon.
It said that this is underscored by a recent material decline in the foreign-reserve buffers alongside elevated external debt service and limited external financing inflows.
Fitch said that the Maldives' gross foreign-exchange (FX) reserves plunged by roughly 20 percent to USD395 million in July 2024 from USD492 million in May 2024, marking the lowest level since December 2016.
It further said that gross reserves net of short-term foreign liabilities hit a record low of only USD44 million.
The decline reflects persistently high current account deficits (CAD), high external debt service, and the Maldives Monetary Authority's continued interventions to support the currency peg of the rufiyaa to the US dollar.
The credit agency said that it expected the Maldives' CAD to remain high over the short to medium term, due to the country's substantial public investment and heavy reliance on imports of food products, energy, and capital goods.
It noted that this has resulted in persistent US dollar shortages, exerting pressures on the parallel market and reserve buffers since its import cover has traditionally been much lower than in 'B'/'C'/'D' peers.
