MMA’s affirms govt’s capability repay external debts following Moody’s rating

Central bank, Maldives Monetary Authority (MMA) has affirmed the government’s capability to repay external debts following the global credit rating agency, Moody’s revision to Maldives’ credit ranking.

In this regard, Moody’s downgraded Maldives’ credit ranking from CAA1 to CAA2.

As per the report, the decision to downgrade was driven by the agency’s assessment that default risks have risen materially, as foreign exchange reserves – even inclusive of assets held in the Sovereign Development Fund – have remained low with prospects for a sharp recovery relatively dim.

In this regard, Moody’s detailed that foreign exchange resources have declined compared to a year ago, even including USD 65 million held in Sovereign Development Fund (SDF)'s USD Custodial Account.

It was stressed that Maldives' reserves remain significantly below the government's external debt service of around USD 600 to 700 million in 2025, and over a billion in 2026.

“We expect current account deficits to remain wide over the next few years, compounding heightened external vulnerability risks,” read the report.

Moody’s also noted that excess domestic liquidity derived from fiscal monetization during the pandemic years continues to weigh on the exchange rate peg to the US dollar. 

MMA released a statement underscoring their points regarding the revision of Maldives’ credit ranking by Moody’s.

In this regard, MMA noted that they project GDP growth to reach 4.9 percent in 2023 and expand to 6.5 percent in 2025. They detailed that the growth estimates are expected to be supported by the robust performance of the tourism sector, underpinned by the strong growth in tourist arrivals which is expected with the inauguration of the new arrival terminal at the Velana International Airport.

“Accordingly, by the end of August 2024 total tourist arrivals to the country have exceeded 1.3 million, observing a 10 percent increase relative to the corresponding period of 2023. Further, the average duration of tourist stay has risen by seven percent in July 2024 when compared with July 2023,” read the statement.

MMA also underscored that both the gross international reserves and usable reserves improved at the end of August, compared to the previous month.

They detailed that the gross international reserve had increased to USD 444 million at the end of August, which stood at USD 395 million at the end of July. With the increase, the usable reserve currently stands at USD 61.22 million.

MMA further said gross international reserves are expected to surpass the USD 606 million projected for the state budget 2024 with inclusion of the usable reserves and SDF balance.

They also noted that efforts were underway to reduce the MVR 6.7 billion surplus liquidity in the banking system by utilizing monetary instruments as part of minimizing the challenges to maintaining exchange rate stability.

“Accordingly, the MMA will commence Open Market Operations this year to mop-up the surplus liquidity,” said MMA.

MMA also said they are set to announce revisions to the monetary regulation during this month which is aimed at overcoming the challenges to the foreign exchange market. They expect the measure to boost the amount of foreign currency entering the domestic banking system.

Concluding the statement, MMA reaffirmed the government’s capability to service the upcoming external bond repayment in October 2024 and extended complete assurance that the obligation will be met in full by the due date.

“There remains no doubt that the MMA and the Government of the Maldives, together with all related government institutions, will be able to meet all future external debt obligations,” stressed the authority.

The current administration is undertaking significant efforts to improve Maldives’ economic state. 

As part of ongoing efforts to improve the foreign reserve, all the technical work pertaining to a Foreign Currency Swap Arrangement with India being undertaken by the Finance Ministry in collaboration with MMA has been completed with the signing of the arrangement being worked on.

The government is also working on formulating and implementing a fiscal policy the reduce expenditure of the state.