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Fitch Upgrades the Maldives to ‘B-’

a year ago

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Fitch Ratings have upgraded the Maldives to “B-”, indicating that the country’s outlook is stable since the country reflects a better recovery from the tourism sector than Fitch previously forecasted, even though the Maldives still faces a challenging refinancing outlook for the sovereign’s external debt over the next few years. Fitch said: “Tourist arrivals so far in 2021 have rebounded sharply to around 70% of pre-pandemic levels, and the number of bed nights has recovered even faster, with tourists, on average, tending to stay around three days longer than in the past,” implying that the recovery in the aforesaid sector has mainly contributed the recovery of the economy of the country, despite the prevailing pandemic. It further said: “In the baseline scenario, we (Fitch Ratings) assume a gradual further normalisation of tourist arrivals to over 80% of pre-pandemic levels in 2022 and to around 100% in 2023,” stressing that the improvement of said sector can be expected to be normalised by the year 2023. However, Fitch also stressed that the Maldives can be vulnerable to shocks caused by high public debt, weak foreign-exchange buffers, and a dependence on tourism, as the uncertainty about the evolution of the coronavirus pandemic still persists. When it comes to the banking sector, Fitch said: “The banking system is well-capitalised, with a reported Tier 1 capital/risk-weighted asset ratio of 47.21% in 2Q21. Private credit represents only 43% of gross domestic product (GDP), and a significant proportion of the banking system is foreign-owned, implying that the sovereign’s exposure to banking-sector risk is relatively low.” However, Fitch also warned that there is a potential for foreign reserves to sink low as the dollarisation remains high at 48% of total deposit and non-performing loans were high, at 8% of total loans in the second quarter of this year, but down from a peak of 20.9% in 2012.
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