Maldives: Credit giant Fitch warns atoll of its soaring sovereign default, skyrocketing debt

International credit agency Fitch downgraded Maldives on June 26, 2024 and warned that the South Asian tourist paradise could be headed for a sovereign default on its foreign loans. The downgrade came six weeks after the IMF warned the Maldives against a looming debt distress as the small but strategically placed luxury tourist destination looks set to borrow more money from its creditor China.

Fitch bumped the archipelago one spot to the CCC on its rating metrics, reflecting risks associated with dwindling foreign currency reserves that dropped to 492 million USD in May, the agency said in a statement. It said the government debt servicing amounting to 409 million USD this year would add to the severe stress.

Since winning office last year, President Mohamed Muizzu has re-oriented the atoll nation known for its upmarket beach resorts and celebrity vacationers away from the traditional benefactor India and towards China. In April, his party won parliament elections in a landslide after promising to build thousands of apartments reclaim more land for urban development and upgrade airports all with Chinese funding.

Fitch said its baseline assumed the Maldives will continue to rely on bilateral and multilateral financing support. The country could leverage its geopolitical strategic importance and the expectation of future policy actions by the new government to raise funding the rating agency said.

Maldives is a small island nation of 1192 tiny coral islets scattered 800kms or 500 miles across the equator, but it strategically straddles key east-west international shipping routes. China has pledged more funding since last year after Muizzu’s victory who thanked the country for its selfless assistance for development funds on a state visit to Beijing shortly after he took power.

Official data showed that the Maldives foreign debt owned the 25.2 percent of the Maldives external debt reaching 4.038 billion last year about 118 percent of the Gross Domestic Product (GDP) and up nearly 250 million USD from 2022. As of June 2023, the Export-Import Bank (EXIM Bank) of China owned 25.2 percent of the Maldives external debt and was the country’s biggest lender, Maldives finance ministry figures showed.