The Ministry of Finance in the Maldives has reaffirmed its commitment to addressing fiscal challenges through structural reforms and financial safeguards, following Moody’s confirmation of the country’s long-term local and foreign currency issuer rating at Caa2 with a negative outlook on December 3, 2024.
Fiscal Strategy and Reforms
The government is focused on enhancing foreign currency liquidity and managing external debt obligations, according to a statement from the Ministry of Finance. The Maldives Monetary Authority has implemented foreign currency regulations, and tax reforms have been designed to boost foreign currency reserves. These measures aim to stabilize the financial system amidst persistent external liquidity pressures.
The government’s fiscal strategy also includes planned expenditure cuts, such as subsidy reforms, and collaborative efforts with the private sector to fund key infrastructure projects in renewable energy and housing. The Maldives Economic Reform Agenda is central to alleviating pressures on the fiscal and external sectors while ensuring long-term economic stability, the ministry stated.
Progress and Collaborative Efforts
The recent currency swap agreement with India and adjustments to tax rates for dollar-denominated services, including the Tourism Goods and Services Tax (TGST) increase slated for mid-2025, have been cited as positive steps towards building reserves. The ministry acknowledged Moody’s assessment of heightened external liquidity risks but expressed optimism that ongoing reforms and fiscal consolidation would address these concerns.
Commitment to Fiscal Responsibility
While Moody’s continues to warn of the Maldives’ vulnerability to external shocks, the government reaffirmed its commitment to fostering fiscal responsibility. The first Fiscal Responsibility Charter under the newly ratified National Fiscal Responsibility Act will be published in six months. The government also underscored its collaborative efforts with international partners to enhance economic resilience.
Challenges and Reforms Ahead
With external debt repayments exceeding USD 600 million in 2025 and more than USD 1 billion in 2026, including a USD 500 million sukuk, the Maldives is under pressure to navigate these challenges effectively. The Finance Ministry stressed that reforms are aimed at securing the country’s economic future, even as significant risks remain.
