Moody’s Upgrades Maldives Credit Rating to Caa1 After Sukuk Repayment

Moody’s Ratings has upgraded the Maldives’ sovereign credit rating by one notch to Caa1 from Caa2, citing a material reduction in the government’s near-term default risk after large external debt repayments this year.

The rating action, issued from Singapore on 8 October, covers the government’s local and foreign currency long-term issuer ratings. The outlook remains stable. It is the first time Moody’s has raised the country’s rating since it began rating the Maldives in 2016.

Caa1 remains within Moody’s speculative grades. The agency’s rating definitions describe obligations rated Caa as “of poor standing” and “subject to very high credit risk”.

Moody’s also raised the Maldives’ country ceilings, which cap ratings on other borrowers in the country, to B1 from B2 for local currency and to B3 from Caa1 for foreign currency.

Debt Repayments Behind the Upgrade

Moody’s said foreign exchange reserves and US dollar savings in the Sovereign Development Fund supported repayment of the US$500 million sukuk in April. The Finance Ministry said on 2 April that the payment totalled US$524.68 million including profit.

The agency listed further payments. These included a US$400 million currency swap repaid in April and two US$50 million Treasury bills owed to the State Bank of India, redeemed in May and September. The maturity of a US$100 million private placement owed to the Abu Dhabi Fund for Development was extended to 2031.

According to Moody’s, government external obligations fell to US$2.4 billion, around 30% of projected GDP, in the second quarter of 2026. They stood at US$2.8 billion, or 35% of projected GDP, at the end of 2025.

Of nearly US$1.9 billion in public and publicly guaranteed external debt service due in 2026, Moody’s said US$411 million remains for the final quarter, including an INR30 billion swap due in October. It puts the 2027 total at US$428 million.

The agency also cited foreign currency rules introduced since late 2024. They require a larger share of tourism-related foreign currency receipts to be deposited and converted through the domestic banking system.

Deficit and Reserve Risks

Moody’s said the rating remains low because of persistent fiscal, external and government liquidity risks. It expects the fiscal deficit to widen to 8.0–8.5% of GDP in 2026 and government debt to remain above 100% of GDP over the next few years. Its figures put the general government deficit at 3.6% of GDP in 2025.

The Finance Ministry’s budget page puts the 2026 budget deficit at MVR8.8 billion, or 7.1% of GDP.

The agency said higher energy and transport costs and weaker tourism receipts would renew balance-of-payments pressures. It described usable reserve coverage as weak compared with similarly rated sovereigns.

Moody’s said foreign exchange reserves reached around US$1.3 billion in March before the repayments. MMA data shows official reserve assets of US$643.8 million at the end of August, 20.5% lower than a year earlier.

What Could Move the Rating

Moody’s said it would likely upgrade the rating if fiscal improvement put government debt on a clear downward path and materially reduced borrowing needs. Sustained growth in foreign currency buffers would also be credit positive.

It would consider a downgrade if financing access weakened, foreign currency buffers declined or the foreign exchange reforms became less effective. A sustained weakening in fiscal performance, or a shock to tourism receipts, could also put pressure on the rating.

Rating History

Moody’s assigned the Maldives a B2 rating in 2016. It lowered the rating to B3 in May 2020 and, on 17 August 2021, to Caa1. A further cut to Caa2 followed in September 2024. On 27 November 2025, it changed the outlook to stable from negative.

The Finance Ministry’s statement on the upgrade said public and publicly guaranteed debt fell to 122.6% of GDP at the end of July 2026, from 129.2% at the end of 2025. It also cited new financing of US$40 million from the World Bank, US$50 million from the Asian Development Bank and US$40 million from the OPEC Fund.

Fitch Ratings upgraded the Maldives on 3 June 2026, according to a ministry statement that said the agency judged default risks to have eased considerably after the sukuk repayment.