Fitch Upgrades Maldives Sovereign Rating to ‘CCC‑’ as Default Risk Eases

Fitch Ratings has lifted the Maldives’ Long‑Term Foreign‑Currency Issuer Default Rating (IDR) to ‘CCC‑’ from ‘CC’, signalling that the island nation’s near‑term default risk has moderated after a successful repayment of a USD 500 million sukuk in early April. 

The rating agency noted that the sovereign’s ability to service external debt has improved, buoyed by the repayment of the sukuk and the implementation of revenue‑side reforms, including the recently enacted Foreign Currency Act, which is expected to bolster the government’s capacity to generate foreign‑exchange receipts.

The upgrade reflects a confluence of factors. The government settled the USD 500 million principal and a USD 24.68 million final coupon on 5 April using USD 350 million from the Sovereign Development Fund (SDF) and USD 175 million from usable foreign‑exchange reserves. 

The operation left the SDF’s cash balance virtually exhausted – it edged up to just USD 21 million by month‑end – while usable reserves fell to USD 244 million, of which USD 97 million was parked in local banks to support dollar liquidity. Gross FX reserves dropped from USD 1.3 billion at the end of March to USD 718 million by the end of April, after the Maldives Monetary Authority (MMA) repaid a USD 400 million drawdown under its swap arrangement with the Reserve Bank of India and drew a further INR 30 billion (USD 311 million) through a rupee‑facility, a sum that accounts for 43.4 percent of gross reserves and is excluded from usable reserves.

Despite the cash‑flow relief, Fitch cautions that the Maldives remains exposed to acute external and fiscal vulnerabilities. The sovereign’s external debt‑service obligations are slated to fall to USD 535 million in the second half of 2026, down sharply from USD 1.1 billion in the first half—thanks largely to the sukuk repayment. The country’s gross reserves are projected to cover less than one month of current external payments in 2026, far below the peer median of 3.9 months. The current‑account deficit is forecast to widen to 17.5 percent of GDP in 2026, driven by higher import bills and softer services‑export receipts amid a global energy shock and travel disruptions.

On the fiscal side, Fitch projects the fiscal deficit to balloon to 14.6 percent of GDP in 2026, more than double the government’s 7.1 percent target, as tourism‑related revenue weakens and spending pressures mount from blanket energy subsidies and a rebound in capital expenditure. General‑government debt is expected to rise to 119.2 percent of GDP in 2027, almost double the peer median of 61.8 percent, while interest payments remain elevated compared with many peers. The largest state‑bank’s plan to issue a USD 300 million sukuk, backed by a government guarantee, could further inflate guaranteed debt.

“The Maldives will continue to rely on official external financing, given that market access remains prohibitively expensive,” said the Fitch report. 

“A potential IMF programme would likely be contingent on credible fiscal consolidation and debt restructuring.” 

The report added that the sovereign’s wide twin deficits, low reserve coverage and heavy dependence on tourism‑related receipts leave it vulnerable to severe terms‑of‑trade shocks and high transportation costs, with limited buffers to absorb them.

Near‑term growth prospects also remain uncertain. Fitch projects a sharp contraction in 2026 before a modest recovery to 4.5 percent in 2027, underpinned by a gradual return of long‑haul, higher‑spending visitors and new resort capacity. However, the archipelago’s exposure to climate change, given its reliance on nature‑based tourism, adds long‑term pressure to the sovereign’s credit profile, it added.

From a governance perspective, the Maldives scores a “5” on Fitch’s ESG Relevance Scale for Political Stability and Rights, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption, reflecting its World Bank Governance Indicators ranking at the 43rd percentile.