Thiloththama Jayasinghe, Jadetimes Staff
T. Jayasinghe is a Jadetimes news reporter covering Business News
Moody's Investors Service announced the rating down for long-term local and foreign currency issuer ratings of the Maldives from Caa1 to Caa2. Moreover, it has put the ratings under review for a possible further downgrade. The key shift indicates growing concern over the stability of the nation's finances and increasing default risks.
Along with the government rating downgrade, Moody's also extends this by downgrading Maldives Sukuk Issuance Limited's long-term foreign currency-backed senior unsecured rating to Caa2 from Caa1. Rating equally under review. These actions reflect a broader assessment of the Maldives' economic challenges, particularly concerning its foreign exchange reserves.
It blamed the material increase in default risks, saying that the Maldives foreign exchange reserves continued to remain at persistently low levels. The islands' reserves are also considered insufficient accounting for their sovereign development fund assets. The prospects of a sharp recovery look bleak since the country faces sizeable external debt obligations falling due within the next 12 to 18 months.
Adding to these difficulties are huge twin deficits, putting extra pressure on the country's reserves. The Maldives government is looking for solutions to external financing that will help in meeting its fiscal needs; nevertheless, comprehensive funding to meet upcoming maturities remains uncertain. Necessary fiscal reforms being implemented at a snail's pace further worsen the case, which also placed obstacles in the way of the government in stabilizing its financial position.
Concertedly with these rating downgrades, the country ceilings for the Maldives regarding local and foreign currency have been changed to B2 and Caa1 from B1 and B3, respectively. Such a step underlines how cagey the agency has become about the Maldives on questions of economic trajectory and its implications for investors.
These downgrades could therefore have a bearing on investor confidence in the Maldives and its borrowing costs, as its government navigates increasingly treacherous financial waters. Analysts and other stakeholders will be paying close attention to the situation as the government takes steps toward implementing reforms needed and obtaining external financing necessary to prevent a further deterioration of its creditworthiness.
Given these economic hurdles faced by the country, the call for comprehensive fiscal measures and good external obligation management has never been felt acutely. The next few months will be crucial for the determination of the nation's financial future to ensure stability amidst burgeoning economic pressures.
