In a significant endorsement of the Maldives’ economic policies, Moody’s Ratings has affirmed the nation’s credit rating at Caa2, acknowledging the government’s robust fiscal reforms and strategic financial management. This decision follows a comprehensive review assessing the country’s financial and economic landscape.
Strengthening Reserves Through Strategic Reforms
Moody’s highlighted the Maldives’ gradual improvement in foreign exchange reserves since October 2024, attributing this positive trend to decisive monetary policy changes. Key among these is the implementation of the Foreign Currency Act (32/2024), effective from January 1, 2025, which mandates tourism-related businesses and high-earning enterprises to deposit and convert a portion of their foreign currency earnings through the domestic banking system.
These measures have bolstered the nation’s reserves, with foreign exchange holdings reaching $607 million in October, a significant rise from $364 million the previous month. Additionally, the Sovereign Development Fund (SDF) has seen substantial growth, increasing from $2 million to $121 million by early May, providing a critical buffer for external debt repayments.
Tourism Sector Fuels Economic Recovery
The Maldives’ economy, heavily reliant on tourism, has shown remarkable resilience post-COVID-19. A robust rebound in tourist arrivals has not only revitalized the sector but also contributed significantly to foreign currency inflows, supporting the nation’s economic expansion. Moody’s acknowledges this recovery as a pivotal factor in maintaining the country’s credit rating.
Navigating Financial Challenges
Despite these positive developments, Moody’s notes ongoing challenges that could impact the Maldives’ credit outlook. These include difficulties in accessing international financial markets due to global economic shifts, the economy’s vulnerability to external shocks stemming from its dependence on tourism, and the necessity to manage and service a high level of national debt.
The government has proactively addressed these concerns by implementing measures aimed at reducing expenditure and increasing foreign currency income, thereby decreasing reliance on international borrowing. Notably, India has extended crucial financial support by rolling over a $50 million treasury bill, reflecting strong bilateral cooperation and confidence in the Maldives’ fiscal reform efforts.
Path Forward: Sustained Reforms and Economic Resilience
Moody’s suggests that continued focus on improving reserve levels, narrowing budget and trade deficits, and prudent financial management will be essential for enhancing the Maldives’ credit profile. The government’s commitment to these reforms, coupled with the positive trajectory of the tourism sector, positions the Maldives to navigate its financial challenges effectively.
As the nation continues to implement strategic economic policies and strengthen its financial systems, the affirmation of its credit rating serves as a testament to the resilience and potential of the Maldivian economy.
