Moody’s Upgrades Maldives Credit Rating as Default Risks Recede Amid Debt Repayments

Moody’s Ratings (Moody’s) has announced that it has upgraded the Maldives’ local and foreign currency long-term issuer ratings to Caa1 from Caa2, citing a significant reduction in the archipelago’s near-term default risks. The agency has also maintained a stable outlook for the nation’s economy.

The upgrade reflects a successful period of external debt management by the government. According to Moody's, the sovereign’s capacity to meet its obligations has been bolstered by the repayment and refinancing of major external debts, supported by stronger foreign exchange buffers and savings within the Sovereign Development Fund (SDF). Notable milestones include the redemption of a USD 500 million sukuk in April and the settlement of several high-value treasury bills and currency swaps with the State Bank of India and other partners.

“These repayments have materially improved the sovereign’s external debt profile,” the Moody’s report said. Total outstanding government external debt fell to approximately 30 percent of projected GDP in the second quarter of 2026, down from 35 percent at the end of the previous year.

Strengthening Foreign Exchange and Tourism Capture

A cornerstone of this rating improvement is the implementation of new foreign exchange measures designed to capture a larger share of tourism-related earnings. New regulations now require a higher percentage of tourism receipts to be deposited and converted through the domestic banking system. These measures, alongside increased tourism-related taxes, have helped rebuild external buffers, allowing the Maldives to withstand pressures from rising global energy prices and fluctuations in tourist arrivals.

However, despite the upgrade, the Caa1 rating remains in the "speculative" or high-risk category. Moody’s cautioned that the Maldives faces persistent fiscal and liquidity challenges. The agency expects the fiscal deficit to widen to between 8 percent and 8.5 percent of GDP by 2026, with total government debt set to remain above 100 percent of GDP for the foreseeable future.

Balanced Outlook Amid Global Headwinds

The "stable" outlook indicates that the risks to the Maldives’ credit profile are currently balanced. On the upside, continued effectiveness in foreign exchange capture and robust tourism could further strengthen the nation's financial resilience. Conversely, the outlook faces downside risks from potential spikes in energy and transportation costs, or a decline in tourism receipts should the conflict in the Middle East intensify.

The report also highlighted significant Environmental, Social, and Governance (ESG) concerns. With an average elevation of less than five feet above sea level, the Maldives remains acutely vulnerable to climate change and rising sea levels. Moody’s assigned a Credit Impact Score of CIS-5, reflecting "very high" exposure to environmental risks. While the government is investing in massive reclamation projects like Ras Male to mitigate these threats, the costs of such adaptation add to the nation’s long-term fiscal burden.

Ceiling Adjustments

In conjunction with the upgrade, Moody’s raised the Maldives’ local currency ceiling to B1 and the foreign currency ceiling to B3. The gap between these ceilings underscores the potential for convertibility restrictions during times of external stress, as the government continues to prioritise the preservation of reserves to back its pegged exchange rate.

While the upgrade signals a turning point in the Maldives' immediate financial stability, the road ahead remains narrow, requiring disciplined fiscal management and continued support from bilateral partners like India, Malaysia, and multilateral lenders such as the World Bank.