August 29, 2024 – Malé, Maldives

The Maldivian Democratic Party (MDP) expresses deep concern over the downgrading of the Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC+’ by Fitch Ratings. This downgrade reflects heightened risk and a worsening financial situation under the current administration, marked by dwindling foreign reserves, escalating external debt obligations, and increasing external financing pressures.
Factors Leading to the Downgrade
Fitch’s decision to downgrade the Maldives’ credit rating highlights several alarming economic indicators, including a significant drop in foreign exchange reserves and an increase in external debt servicing requirements. However, the MDP believes that the context surrounding these issues is crucial to understanding the severity of the situation:
1. Government Policy and Impact on Tourism: The current administration’s actions, particularly in relation to its initial aggressive foreign policy posturing and consequent ongoing tensions with India, have adversely impacted the tourism sector, a critical pillar of the Maldivian economy. Despite a reported 15% increase in USD revenue from tourism growth, foreign exchange reserves have continued to decline, indicating deeper structural issues in managing economic stability.
2. Excessive and Unplanned Government Spending: The government’s decision to engage in non-essential spending, such as allocating USD $37 million for military drones and an unplanned USD $50 million Treasury bill repayment, has further jeopardized the country’s creditworthiness. These financial choices have diverted resources away from essential areas, worsening the fiscal deficit and external imbalances.
3. Delayed Fiscal Reforms and Inaction: The failure of the current administration to implement necessary fiscal reforms and secure stable external financing has created severe risks for both domestic and international stakeholders. Without concrete measures to address these challenges, the Maldives faces the prospect of further credit downgrades, increased borrowing costs, and a loss of investor confidence.
MDP’s Urgent Call for Government Action
The MDP urges the government to take immediate steps to mitigate these risks. This includes curtailing excessive and non-essential public spending, accelerating the implementation of credible fiscal reforms, and actively seeking support from multilateral partners and strategic allies. Failure to act promptly could lead to a deeper economic crisis, further credit downgrades, and greater financial instability.
Rating agencies have repeatedly highlighted that factors leading to a future upgrade include securing external finances and making significant progress in implementing credible fiscal reforms. We have continuously raised concerns over the lack of progress in raising financing for the budget, delays in fiscal reforms, and the current lack of fiscal transparency. Improving the credit rating in the near future will be essential for the financing strategy in the coming years.
We stand ready to support efforts aimed at restoring fiscal health and ensuring the long-term stability of the Maldivian economy. The MDP calls upon all stakeholders to work collaboratively to safeguard the nation’s future and the well-being of its citizens.