Global credit rating agency Fitch Ratings has once again affirmed the Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at a perilous ‘CC’, highlighting the nation’s continued risk of defaulting on its external debt. While tourism remains strong and foreign reserves have seen a temporary boost, the country’s economy is still in deep waters — and ordinary Maldivians are the ones who will feel the consequences most.
A Warning Sign
The ‘CC’ rating is essentially a red flag. Fitch believes a debt default is probable, given the Maldives’ high fiscal deficits, growing public debt, and mounting external loan repayments. In the second half of 2025 alone, the government faces $688 million in external debt servicing — with total external repayments expected to reach $1.1 billion in 2026. These figures are staggering for a small island nation with limited sources of income.
While the Reserve Bank of India’s $400 million currency swap provided temporary relief, it did not address the root problems: heavy borrowing, poor fiscal discipline, and an unsustainable reliance on external financing.
Fragile Reserves, Rising Debt
Though the Maldives’ foreign exchange reserves improved from a historic low of $371 million in September 2024 to $856 million in April 2025, the net usable reserves — after subtracting short-term obligations — are only $28 million. This leaves the country dangerously exposed to external shocks.
At the same time, public debt continues to rise. Fitch projects the government’s debt to soar to 125% of GDP by 2026, nearly double the median level for similarly rated countries. With the government consistently running double-digit budget deficits — projected at 14.5% of GDP in 2025 — and no meaningful fiscal reform in sight, the debt trajectory remains unsustainable.
Policy Failures
The Fitch report paints a picture of economic mismanagement. Delays in reducing subsidies, increasing healthcare spending, and politically motivated wage hikes have prevented urgently needed reforms. While the tourism sector shows promise — driven by new resorts and infrastructure like the Velana International Airport terminal — this alone cannot solve the broader financial crisis.
The new Foreign Currency Act mandates conversion of 20% of tourism-related foreign currency earnings into rufiyaa, with some banks now required to convert 90%. Though this aims to ease the dollar shortage, it’s a stopgap measure that could strain investor confidence and business operations in the long run.
Impact on the Public
For everyday Maldivians, this rating and its implications translate into rising prices, limited access to essential imports, potential job losses in tourism-dependent sectors, and increased pressure on public services. As the government struggles to repay its debts, social welfare and infrastructure spending could be cut, and taxes may rise.
Moreover, if the Maldives is forced to seek help from the IMF, it will likely come with conditions such as subsidy cuts, austerity, and public sector downsizing — all of which will directly affect people’s lives.
What Needs to Be Done
Fitch has made it clear: unless the government enacts serious fiscal reforms and improves its ability to attract sustainable external financing, the Maldives’ debt crisis will only worsen. Rebuilding investor confidence, restructuring debt responsibly, and implementing long-overdue economic reforms are critical.
The question now is whether President Muizzu’s administration has the political will and competence to act before it’s too late — or if the Maldivian people will once again bear the cost of economic mismanagement.
