Moody’s Raises Maldives to Caa1, Forecasts Wider Fiscal Deficit
- Moody's upgraded the Maldives' sovereign credit rating from Caa2 to Caa1 on 8 October with a stable outlook, citing reduced external repayment pressures and improved foreign currency buffers.
- The upgrade follows major debt repayments including the USD 500 million sukuk, USD 100 million in Treasury bills to the State Bank of India, and a USD 400 million Indian currency swap.
- Despite the relief, Moody's expects the fiscal deficit to widen to 8.0–8.5 per cent of GDP in 2026, with government debt remaining above 100 per cent of GDP.
The Maldives’ immediate risk of default has fallen following major debt repayments and refinancing, prompting Moody’s to upgrade its sovereign credit rating, although the agency expects a wider fiscal deficit and continuing pressure on foreign currency reserves.
Moody’s raised the government’s local and foreign currency long-term issuer ratings from Caa2 to Caa1 on 8 October, maintaining a stable outlook. The decision reflects reduced external repayment pressures, improved foreign currency buffers and continued access to bilateral financing.
The upgrade leaves the Maldives within Moody’s Caa category, which carries very high credit risk. “However, the Caa1 rating remains low, reflecting persistent fiscal, external and government liquidity risks,” the agency said.
Moody’s cited repayment of the USD 500 million sukuk in April, two USD 50 million Treasury bills owed to the State Bank of India in May and September, and settlement of the USD 400 million Indian currency swap in April. The maturity of a separate USD 100 million private placement owed to the Abu Dhabi Fund for Development was extended to 2031, postponing that obligation.
Outstanding government external obligations declined from USD 2.8 billion at the end of 2025 to USD 2.4 billion in the second quarter of 2026, according to the agency. These figures concern government external debt and do not represent the country’s total public and publicly guaranteed debt.
External repayments are also becoming less concentrated. Moody’s estimated that USD 411 million remained payable in the final quarter of 2026, including an INR 30 billion currency swap due in October, out of nearly USD 1.9 billion in public and publicly guaranteed external debt service for the year. External debt service of USD 428 million is due in 2027.
Despite this relief, Moody’s expects the fiscal deficit to widen to between 8.0 and 8.5 per cent of GDP in 2026. Government debt is expected to remain above 100 per cent of GDP over the next few years, while large domestic refinancing requirements will sustain liquidity risks.
The agency credited foreign exchange measures introduced since late 2024 with helping capture more tourism earnings through the domestic banking system. Higher foreign currency tax and fee collections have also supported reserves and the Sovereign Development Fund.
However, further rebuilding of these buffers depends on effective implementation and broadly sustained tourism earnings. Moody’s warned that usable reserve coverage remains weak compared with similarly rated countries, while the forthcoming tourism and import season will test foreign currency inflows against elevated energy costs.
Higher energy and transportation costs, alongside weaker tourism receipts, could renew balance-of-payments pressures. The stable outlook reflects a balance between these risks and the reduction in external repayment obligations.
Moody’s said a further upgrade would depend on sustained fiscal improvement that places debt on a clear downward path and reduces borrowing and refinancing needs. Weaker access to financing, declining foreign currency buffers or further deterioration in fiscal performance could instead lead to a downgrade.
