Moody’s Ratings has affirmed the Maldives' long-term credit rating at Caa2 but dramatically shifted the outlook from its previous status of Negative to Stable, signaling increased confidence in the nation's efforts to stabilise its precarious fiscal situation.
The decision, announced Thursday, reflects Moody’s recognition of the government’s strong fiscal policies, effective measures implemented over the past year, and demonstrated capability to enhance the country’s debt repayment capacity. This change suggests that the immediate risks associated with the Maldives’ fiscal position have been substantially mitigated.
For several years, the island nation struggled with a macroeconomic environment defined by government expenditure exceeding revenue, leading to high-cost borrowing and a rapid deterioration of its fiscal health. This high dependency on foreign currency borrowing had previously pushed government finances toward a potential debt default and depleted state official reserves to unprecedented levels.
Moody’s noted that the improvement in the macro-fiscal situation is primarily a result of deliberate fiscal and monetary policy adjustments. Key measures highlighted include revisions to crucial tax and fee rates—specifically the airport tax, green tax, and TGST rates—designed to significantly increase foreign exchange earnings. The implementation of robust foreign exchange laws and regulations has further bolstered official reserves and foreign exchange liquidity.
Evidence of this success is visible in the Sovereign Development Fund (SDF). While holding only USD 15 million last year, policy changes have increased the foreign exchange cash balance within the SDF to USD 126 million by 9 November 2025. Additionally, the ratings agency acknowledged the government’s commitment to expenditure reduction, successfully narrowing this year’s budget deficit.
Significantly, these stringent fiscal adjustments have not hampered economic growth. The vital tourism sector continues to thrive, with tourist arrivals increasing by 10 percent year-over-year, and tourist overnight stays up by 7.2 percent as of September.
While the Caa2 rating remains in place due to the high existing level of public debt, the stable outlook underscores a positive medium-term trajectory. The government’s medium-term budget for 2026 to 2028 is squarely focused on reducing the government deficit to a sustainable level and enhancing debt sustainability through annual repayments from the SDF. Crucially, the government has detailed plans to repay USD 500 million in Sukuk and other maturing debt in 2026, laying the foundation for a lower debt-to-GDP ratio.
Moody’s also observed a renewed trust from international partners. Despite previously facing restricted access to foreign financing, the Maldives has successfully raised required capital through reciprocal countries, demonstrating its enhanced ability to secure financing from bilateral sources—a clear indicator that the new financial policies have earned the confidence of foreign investors and governments.
The government has committed to continuing its strict revenue and expenditure policies, aiming to restore comprehensive fiscal and debt sustainability while maintaining macroeconomic stability.