Finance Ministry: Moody’s credit ranking does not reflect recent economic improvements

Finance Ministry has stated that Moody’s Investor Service does not reflect the current fundamentals of the Maldivian economy and the significant improvements that took place since they last rated Maldives in May 2020 – while downgrading the Maldives’ credit ranking recently.

Last Tuesday, Moody’s had downgraded Maldives’ long-term local and foreign currency issuer and long-term foreign currency senior unsecured ratings from B3 to Caa1.

While Moody’s had acknowledged improvements on several fronts of the Maldives – they had downgraded the ranking citing higher debt levels that will only decline gradually, and a weakening of debt affordability with greater exposure to market conditions.

In a statement released by the Finance Ministry yesterday, they had said that Moody’s had not considered the current fundamentals of the Maldivian economy and the significant improvements that took place since they last rated Maldives in May 2020 in its recent ranking.

Furthermore, they noted that the government remains in a position to comfortably honor all debt obligations – despite the debt-to-GDP ratio increasing from 62.5 percent in 2019 to 115.0 percent in 2020 due to the widening of the fiscal deficit and the sharp contraction in nominal GDP consequent to the COVID-19 pandemic. In this regard, the statement read that as the economy recovers, the debt-to-GDP is improving with fiscal consolidation measures in place and high GDP growth expected in the medium term.

In addition to this, the Ministry noted that e weighted average interest rate of the government’s external debt portfolio inclusive of the sukuk still remains at 3.5 percent.

They also highlighted that securing concessional financing from bilateral and multilateral partners is vital to the government’s strategy – and in order to maintain a range of financing options, Maldives will remain in dept capital markets.

The Maldivian economy had plummeted by 32 percent due to the COVID-19 pandemic last year. However, the Ministry noted that 18 months into the pandemic – the economy is now in a much better position. In this regard, they forecast real GDP to grow at 22.7 percent in 2021 and is expected to average at 9.8 percent over the period 2022 to 2025. It is also expected that the government revenue will increase above pre-pandemic levels in 2023.

While Moody’s had downgraded the credit ranking of Maldives – they have also concurrently upgraded the outlook of the Maldivian economy from negative to stable in the light of the rapid rebound of the tourism sector. Additionally, the recent issuance of the debut sukuk and the subsequent tender offer on Maldives’ Eurobond alleviating short-term liquidity pressures was also cited as a reason. Accordingly, with this tender offer, the government has already settled 76.8 percent of the large repayment that was due for 2022. Moody’s further highlighted that the sukuk issuance diversified the Maldives’ investor base. Moody’s also expects the Maldives Sovereign Development Fund to comfortably service the remaining Eurobond principal in full, reducing the risk to the foreign exchange reserves.

In concluding their statement – the Ministry stressed that Maldives has never defaulted on its debt obligations while reiterating the government’s full commitment and ability to ensure that this remains the case in the future as well.