Fitch Upgrades Maldives to ‘CCC-‘ from ‘CC’

Fitch Ratings has upgraded the Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC-‘ from ‘CC’. Fitch typically does not assign Outlooks to sovereigns with a rating of ‘CCC+’ or below.

A full list of rating actions is at the end of this Rating Action Commentary.

The rating upgrade reflects Fitch’s assessment that default risks have eased following successful repayment of the Maldives’ sukuk issuance in April 2026. Implementation of revenue-side reforms and the Foreign Currency Act could strengthen the government’s capacity to generate foreign-currency receipts. The sovereign’s reduced external debt-servicing and continued access to bilateral and multilateral support should alleviate near-term liquidity pressures, and could support rebuilding of external buffers over time.

The ‘CCC-‘ rating reflects external and fiscal vulnerabilities which are still high. The sovereign’s wide twin deficits, high public debt and low reserve coverage are combined with significant exposure to the Iran-war energy shock, and heavy dependence on tourism-related receipts.

Key Rating Drivers

Thin External Buffers: The government settled a USD500 million sukuk principal and final coupon of USD24.68 million in early April, using a combination of USD350 million cash balance from the Sovereign Development Fund (SDF) and USD175 million from usable FX reserves. The repayment nearly drained the SDF’s cash balance, before it edged up to USD21 million by end-April. Usable reserves fell to USD244 million, of which USD97 million was placed in local banks to support US dollar liquidity. High borrowing costs reduced the ability to roll over the sukuk, in our view.

Gross FX reserves fell to USD718 million by end-April from USD1.3 billion at end-March. The Maldives Monetary Authority’s (MMA) settled the USD400 million drawdown under its swap arrangement with the Reserve Bank of India in April, and drew another INR30 billion under the rupee facility. The MMA converted the rupee drawdown (USD311 million), and deposited this with a foreign bank. The drawdown accounted for 43.4% of gross reserves and is excluded from usable reserves.

Reduced External Debt Service: The government has USD535 million in sovereign and publicly guaranteed external debt-service obligations due in 2H26, down sharply from USD1.1 billion in 1H26, about half of which reflected the sukuk repayment. Total external debt-servicing falls further in 2027. The government’s USD100 million private placement with the Abu Dhabi Fund has been rolled over to 2031, and a separate USD100 million funding facility has been obtained from an Omani creditor through a state-owned enterprise to support energy security.

Low Reserve Coverage: We project the Maldives’ gross-reserve to cover less than one month of current external payments in 2026, well below the ‘B’/’C’/’D’ peer median of 3.9 months. We forecast the current account deficit (CAD) to rise sharply to 17.5% of GDP in 2026 from 8.4% in 2025, reflecting higher import bills and weaker services export receipts amid the global energy shock and travel disruptions.

The Maldives sources fuel imports primarily from Oman, with major export ports less directly exposed to the closure of the Strait of Hormuz. However, the country remains highly vulnerable to severe terms-of-trade shocks and high transportation costs with limited buffers.

Reliance on External Support: We expect the government to remain reliant on external financing from official creditors, as market access is prohibitively expensive. Financial support from the IMF, if requested by the authorities, would most likely be contingent on credible fiscal consolidation and debt restructuring. We expect external imbalances to persist, as wide CADs and excess domestic liquidity continue to drive US dollar shortages and substantial spreads between official and parallel-market rates, adding pressure to maintain the peg to the US dollar.

Wider Fiscal Deficit: We forecast fiscal deficit will widen sharply to 14.6% of GDP in 2026, from 2.9% in 2025, more than double the government’s 7.1% target. This reflects our expectation of weaker tourism-related revenue and higher spending pressures due to blanket energy subsidies and a rebound in capital expenditure. We expect the government to rely more on domestic financing of the widening deficit, but banks have limited capacity to absorb additional government debt, which could intensify domestic refinancing pressures.

Elevated Public Debt: We project general government debt to rise to 119.2% of GDP in 2027, nearly double the projected ‘B’/’C’/’D’ median of 61.8%. We see the debt-ratio rising on modest fiscal consolidation and limited expenditure rationalisation. Interest payments will increase and stay above many peers. We estimate outstanding government-guaranteed debt at 17.1% of GDP in 2025. The largest state bank seeks to issue USD300 million sukuk with a government guarantee, which could raise guaranteed debt further.

Near-Term Growth Uncertainty: We project growth to fall sharply, before recovering to 4.5% in 2027, on a gradual recovery in long-haul, higher-spending travellers. A prolonged conflict and weaker travel demand pose key downside risk to near-term prospects. The medium-term outlook remains robust, supported by expanded capacity, continued investment in new resorts and tourism infrastructure. However, the archipelago faces climate change risks, given the reliance on nature-based tourism, adding long-term pressures to the sovereign’s credit profile.

ESG – Governance: The Maldives has an ESG Relevance Score (RS) of ‘5’ for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption. These scores reflect the high weight that the World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. The Maldives has a medium WBGI ranking at the 43rd percentile, reflecting recent peaceful political transitions, a moderate level of rights for participation in the political process, institutional capacity, corruption and rule of law.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

– External Finances: Signs of probable default due to limited access to external financing and depletion of external buffers and/or evidence of reduced willingness to pay external debt as a means of alleviating current external liquidity pressures.

– Public Finances: Failure to service debt obligations, or unilateral declaration of a debt moratorium, or launch of a formal debt renegotiation process that Fitch deems would constitute a default or a default-like event.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

– External Finances: Strengthening of external financing capability and external buffers, for example through policy settings or sustained access to external financing sources that increase foreign-currency reserves in a durable manner.

– Public Finances: Significant progress in implementing a credible fiscal consolidation strategy, putting public debt on a declining medium-term trajectory.

Sovereign Rating Model (SRM) and Qualitative Overlay (QO)

Fitch’s proprietary SRM assigns the Maldives a score equivalent to a rating of ‘CCC+’ on the Long-Term Foreign-Currency (LT FC) IDR scale. However, in accordance with its Rating Criteria, Fitch’s sovereign rating committee has not utilised the SRM and QO to explain the ratings in this instance. Ratings of ‘CCC+’ and below are instead guided directly by the rating definitions.

Fitch’s SRM is the agency’s proprietary multiple regression rating model that employs 18 variables based on three-year centred averages, including one year of forecasts, to produce a score equivalent to a LT FC IDR. Fitch’s QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM.

Debt Instruments: Key Rating Drivers

Fitch does not currently rate any debt instruments for this sovereign.

Country Ceiling

The Country Ceiling for the Maldives is ‘B-‘, which is the floor for the Country Ceiling without the materialisation of transfer and convertibility risks. For sovereigns rated ‘CCC+’ or below, Fitch assumes a starting point of ‘CCC+’ for determining the Country Ceiling. Fitch’s Country Ceiling Model produced a starting point uplift of 1 notch. Fitch’s rating committee did not apply a qualitative adjustment to the model result.

Fitch does not assign Country Ceiling below ‘CCC+’, and only assigns a Country Ceiling of ‘CCC+’ in the event that transfer and convertibility risk has materialised and is affecting the vast majority of economic sectors and asset classes.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Climate Vulnerability Signals

The Maldives has an elevated Climate Vulnerability Signal (Climate.VS) of 50 in 2035, mainly to reflect its exposure to sea level rise, coral bleaching and extreme weather events. We have not adjusted the rating beyond that to reflect these factors – given the long time scale and high levels of uncertainty involved in the potential impact of the risks, and action the entity might take to adapt to or mitigate the exposure.

ESG Considerations

The Maldives has an ESG Relevance Score of ‘5’ for Political Stability and Rights, as World Bank Governance Indicators have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and a key rating driver with a high weight. As the Maldives has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.

The Maldives has an ESG Relevance Score of ‘5’ for Rule of Law, Institutional & Regulatory Quality and Control of Corruption as World Bank Governance Indicators have the highest weight in Fitch’s SRM and are therefore highly relevant to the rating and are a key rating driver with a high weight. As the Maldives has a percentile rank below 50 for the respective Governance Indicators, this has a negative impact on the credit profile.

The Maldives has an ESG Relevance Score of ‘4’ for Human Rights and Political Freedoms as the Voice and Accountability pillar of the World Bank Governance Indicators is relevant to the rating and a rating driver. As the Maldives has a percentile rank below 50 for the respective Governance Indicator, this has a negative impact on the credit profile.

The Maldives has an ESG Relevance Score of ‘4’ for Creditor Rights as willingness to service and repay debt is relevant to the rating and is a rating driver for the Maldives, as for all sovereigns. As the Maldives has a fairly recent restructuring of public debt in 2020, this has a negative impact on the credit profile.

The highest level of ESG credit relevance is a score of ‘3’, unless otherwise disclosed in this section. A score of ‘3’ means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch’s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision.