Maldives seeks financial lifeline from China after Fitch downgrades country’s rating to junk
- In Reports
- 11:46 AM, Jun 28, 2024
- Myind Staff
On Thursday, Maldives Minister for Trade Mohamed Saeed held discussions with Chinese banks to form strategic alliances to boost the country's economy. This comes as the US credit ratings agency Fitch has downgraded Malé's credit rating to junk, casting doubt on the country's ability to repay its foreign debt.
Saeed, who is currently in China to attend the 15th World Economic Forum in Dalian, met with senior officials from the Industrial and Commercial Bank of China (ICBC) to discuss strategies for further engagement. He later held discussions with senior officials from the Bank of China.
Saeed, who also oversees the Maldives’ Economic Development Ministry, wrote a post on X stating that following President Mohamed Muizzu’s meeting with Chinese President Xi Jinping in January during a state visit to Beijing, he met with senior executives of the Bank of China “to explore ways in strengthening cooperation between China and the Maldives.” After Muizzu’s state visit, Saeed is the first high-level official to visit China.
Meanwhile, on Wednesday, the US credit agency Fitch downgraded Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘B-’.
Explaining the lowest of the ratings, Fitch said in a statement, “Fitch typically does not assign Outlooks to sovereigns with a rating of ’CCC+’ or below” and said Maldives’ poor rating “reflects increased risks associated with the country’s worsening external financing and liquidity metrics.”
“We expect the Maldives’ foreign reserves to remain under significant stress in the coming year. Their decline to USD 492 million in May 2024 from USD 748 million a year ago reflects a persistently high current account deficit (CAD),” it said.
Listing the weaker external buffers, it further said, “The Maldives Monetary Authority’s (MMA) continued interventions to support the currency peg; the repayment of the USD 100 million swap arrangement with the Reserve Bank of India in December 2023 and gross foreign reserves net of the short-term foreign liabilities was significantly lower at USD73 million.”
According to Fitch’s rating commentary for the Maldives, USD 233 million in sovereign external debt-servicing obligations and USD 176 million in publicly guaranteed external debt-servicing obligations are due in 2024. "These figures will rise to USD 557 million in 2025 and exceed USD one billion in 2026," the statement said.
As of 2023, official data indicates that the Maldives' foreign debt surpassed USD four billion, with approximately USD 1.5 billion owed to its largest lender, China.
Earlier on Wednesday, Saeed held discussions with the Chinese Minister of Commerce, Wang Wentao, regarding the free trade agreement (FTA) between the Maldives and China. However, there were no references to discussions between the two ministers regarding the Maldives' requests to China for debt restructuring.
Last month, Chinese envoy to Maldives Wang Lixin informed the media in Male that China currently has no plans to restructure the debt owed by Maldives to Beijing. He stated that such restructuring could hinder Male's ability to secure new loans.
As a global holiday destination, Maldives, an archipelagic country consisting of 26 atolls, heavily relies on tourism for its foreign exchange revenues.
Observers warn that without debt restructuring, Maldives could potentially face a situation similar to Sri Lanka, which experienced a sovereign default in 2022.
Image source: Reuters
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