The Maldivian government has moved to reassure investors following a dramatic fall in the value of its Sukuk bonds, amid escalating concerns of a potential default. Finance Minister Dr. Mohamed Shafeeq, speaking to local media Mihaaru, emphasised that there are no challenges regarding the upcoming USD 25 million Sukuk coupon payment due on 8th October.
Minister Shafeeq noted that the first bi-annual coupon payment was successfully made in March, a similarly difficult period for the country’s finances. He stressed that while the value of the Sukuk had fallen due to concerns over the country’s dwindling foreign reserves, the Maldives has never entirely depleted its reserves. “The reserve is good now. MIRA’s collection is also much better than before,” he stated, referring to the Maldives Inland Revenue Authority’s improved revenue collection.
The decline in the Maldivian Sukuk’s value, from 93 cents to below 70 cents on the dollar, has made it the poorest performer in the Bloomberg Emerging Markets Sovereign Total Return Index for the month. This fall has raised alarms among investors, especially given that a potential default on a Sukuk—an Islamic financial certificate, would be unprecedented and challenge the perception of Sukuk as a secure and low-risk investment instrument.
Despite these concerns, the Finance Minister remains confident that the market will stabilise. He remarked that while the Sukuk’s value has dropped, it is expected to recover once the economic situation improves.
The Maldives is currently working to increase its foreign reserves, which stood at USD 395 million as of June, with only USD 45 million deemed usable. Efforts to secure a USD 400 million currency swap facility with the Reserve Bank of India are ongoing, alongside plans to issue a green bond to raise additional funds. These steps are crucial as the country faces mounting foreign debt repayments.
The Maldivian government has been actively seeking external financial support to avoid a default, and the Finance Minister’s reassurances aim to calm the market as the crucial October deadline approaches. However, investors remain watchful, aware that the stakes are high for the small island nation navigating its financial challenges.
