The Maldives has suffered a downgrade in its international credit rating by both Fitch Ratings and Moody’s Investors Service. The two agencies cited rising debt, weak foreign exchange reserves, and ballooning government expenditure and deficits under the previous administration as the main reasons for their decisions.

A sovereign credit rating reflects a country’s ability to repay its debt on time. A lower rating not only increases the cost of borrowing from global financial markets but can also restrict access to credit altogether. Countries with ratings in the B category may borrow at interest rates of around 6–7 per cent, whereas those in the CCC category often pay nearly double. At the same time, many institutional investors, such as pension funds, are barred from investing in bonds and sukuk issued by countries rated below a certain threshold, limiting financing options.

Over the past five years, the Maldives’ debt has climbed to MVR 124.2 billion. The increase stemmed from rapid government spending, the suspension of the Expenditure Accountability Act, and the printing of approximately MVR 8 billion. The fiscal deficit was repeatedly widened beyond budget estimates in 2021 and 2022. Economists argue that such policies ignored warnings from financial experts and directly contributed to the credit downgrade.

Both Fitch and Moody’s pointed to two key weaknesses:

Since taking office, President Dr Mohamed Muizzu’s Administration has launched reforms designed to strengthen reserves and restore fiscal discipline. Among them are:

As a result, the MMA reported official reserve assets and other foreign currency holdings totalling around USD 900 million in July 2025, with usable reserves significantly higher than at the start of the year.

The Maldives’ economic vulnerabilities stem largely from two deficits:

To narrow the trade imbalance, the Government has focused on revitalising the fisheries sector, the country’s largest export earner. In December 2024, a new policy guaranteed that fishermen would be paid within 48 hours of their catch being sold. Officials report that the measure has stabilised incomes and boosted export performance. While the Maldives’ dependence on imports makes it difficult to close the trade gap entirely, authorities expect the deficit this year to be lower than last.

On the fiscal side, the Ministry of Finance has pursued strict expenditure controls. By 28 August 2025, state spending stood at MVR 24.8 billion, 15.6 per cent lower than the same period in 2024. For the first eight months of this year, the Government has operated without a budget deficit, a rare achievement given past trends. Debt repayments, totalling MVR 534.6 million during this period, were made on schedule.

Foreign exchange reserves are a key indicator of a country’s debt repayment capacity. As reserves have strengthened, the government has also prioritised the Sovereign Development Fund (SDF), which acts as a fiscal buffer for future obligations. Contributions to the SDF in 2025 have already surpassed last year’s levels.

Officials argue that these measures demonstrate the Maldives’ commitment to responsible debt management and improve confidence among international lenders and investors.

Economists note that if the Government sustains its current reforms, particularly maintaining usable reserves, controlling expenditure, and supporting fisheries and tourism exports, the Maldives could see its rating stabilise or even improve in the medium term.

A stronger credit rating would lower borrowing costs and expand access to global markets, easing the country’s ability to refinance debt in the coming years. Analysts stress that such improvements will depend on consistent fiscal discipline and continued diversification of foreign exchange earnings.

For now, the downgrade serves as both a warning and a benchmark. While the country’s recent reforms have started to show positive results, the challenge lies in maintaining momentum to ensure long-term financial sustainability.