Moody's Investors Service has said, Maldives demonstrates strong debt affordability metrics due to a large revenue base and a well-funded banking system. Moody's conclusions are in its just-released annual credit analysis titled "Government of Maldives - B2 stable" and which examines the country in four categories.
Moody's Investors Service says that the credit profile of the Government of Maldives is supported by the country's healthy economic growth and competitive tourism sector. According to Moody's Investors Service,s Maldives also demonstrates strong debt affordability metrics due to a large revenue base and a well-funded banking system. However, robust growth has been accompanied by budget and current account deficits, and a ramp-up in debt.
The annual credit analysis examines the sovereign in four categories: economic strength, which is assessed as institutional strength, fiscal strength and susceptibility to event risk. The report constitutes an update to investors and is not a rating action.
The report by Moody’s cites that Maldives' GDP growth edged higher in 2016 to 3.9 per cent year-on-year from a 2.8 per cent increase in the previous year. While the tourism sector continues to drive headline GDP, growth in arrivals has slowed in the last few years. In a shift from past trends, tourist arrivals from China are falling, although arrivals from Europe remain strong.
GDP growth has also been powered by the government's emphasis on infrastructure development. Large projects spending on which will total around $1.5 billion or close to 30% of 2019 GDP over the next three years are being developed under the Public Sector Infrastructure Program, with the goal of enhancing Maldives' attractiveness as a tourist destination.
However, Moody’s report noted that these projects will also contribute to an increase in the debt burden over the medium term. Moody's expects government debt to continue to rise in the coming years, to 82.2 per cent of GDP by 2019, on the back of the government's infrastructure development plan.
Despite wide current account deficits, foreign exchange reserves have edged higher over the past year. Reserves accretion was supported by a sovereign bond issuance in June, and steady inflows of foreign direct investment. According to the report, the stable outlook on the sovereign's rating indicates balanced credit strengths and challenges.