Following Moody's recent downgrade of Maldives' credit rating from CAA1 to CAA2, the Maldives Monetary Authority (MMA) has stepped forward to assure stakeholders of the country's capability to meet its debt obligations.
Economic Outlook and Tourism Performance
In its statement, MMA projected a positive economic trajectory, forecasting a GDP growth of 4.9% for 2024 and 6.5% for 2025. This growth is expected to be bolstered by strong tourism performance and the anticipated benefits from the new terminal at Velana International Airport (VIA). As of August 2024, the Maldives had welcomed over 1.3 million tourists, marking a 10% increase compared to the same period in 2023. Additionally, the average duration of tourist stays increased by 7% in July 2024 from the previous year.
Reserves and Liquidity Measures
The MMA highlighted improvements in both gross international and usable reserves by the end of August 2024. Usable reserves currently amount to USD 61 million, and combined with the Sovereign Development Fund (SDF) balance, are expected to push gross reserves above the USD 606 million projected in the 2024 state budget.
In response to Moody's concerns about external liquidity, the MMA outlined plans to reduce the MVR 6.7 billion surplus liquidity in the banking system. To address this, the central bank will initiate Open Market Operations (OMO) later this year. The MMA also plans to introduce new monetary regulations to enhance the foreign exchange market, aiming to boost foreign currency inflows into the domestic banking system.
Government Assurance and Future Outlook
"The MMA reaffirms the Government's ability to service the upcoming external bond repayment in October 2024," stated the central bank, emphasizing their confidence in meeting future debt obligations. This assurance comes amid Moody's concerns about the Maldives' fragile external liquidity position and Fitch Ratings’ recent downgrade to CC, reflecting broader market apprehensions.
The Maldivian government has committed to implementing the recommended fiscal and monetary reforms suggested by the rating agencies. Additionally, cost-cutting measures within state-owned enterprises are underway as part of broader efforts to ensure fiscal stability and mitigate economic risks.
The MMA’s response aims to address concerns raised by recent credit rating downgrades and to reinforce confidence in the Maldives' economic management and debt repayment capabilities.
