Maldives Trade Minister chases Chinese banks as Fitch downgrades his country's rating to junk

President of Maldives

Maldives Minister for Trade Mohamed Saeed on Thursday held talks with Chinese banks to form strategic alliances to boost his country's economy as the US credit ratings agency Fitch has downgraded Male's credit rating to junk, raising question marks over the country’s ability to pay back its foreign debt.

Saeed, who is currently in China, to attend the 15th World Economic Forum being held in the Chinese city of Dalian, met with the senior officials of the China Industrial and Commercial Bank (ICBC) to discuss strategies for further engagement, and later met with the senior officials of the Bank of China. Saeed, who also holds charge of 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 the 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 will come due in 2024.  The figures will rise to USD 557 million in 2025 and exceed USD one billion in 2026, the statement said. According to official data, as of 2023, the Maldives’ foreign debt was stated to be over USD four billion of which it owes about USD 1.5 billion to its biggest lender China.

Earlier on Wednesday, Saeed met the Chinese Minister of Commerce Wang Wentao for discussions related to the free trade agreement (FTA) between the Maldives and China. However, there was no reference to any talks between the two ministers about Maldives requests to China to restructure debt.

Last month Chinese envoy to Maldives Wang Lixin told the media in Male that China has no plans to restructure the debt owed by Maldives to Beijing because it will hinder Male from securing new loans. As a global holiday destination, Maldives, an archipelagic country with 26 atolls mainly banks on tourism for its foreign exchange revenues. Observers say without restructuring of debt, Maldives could face a similar situation as Sri Lanka facing its sovereign default in 2022.