Maldives Has Gained Time, Not Safety: What IMF, Fitch and the World Bank Are Really Saying

The Maldives has moved away from the immediate risk of a financing crisis, but recent assessments by three major international institutions suggest that the country's longterm resilience will depend on whether the current breathing space is used to implement difficult reforms. The question is no longer whether the Maldives can meet the next debt repayment, but whether it can reduce the vulnerabilities that make each major debt repayment a recurring source of uncertainty.

Just over a year ago, concerns about the Maldivian economy centred on one question: could the country meet its large external debt obligations, particularly the USD500 million sovereign sukuk repayment due in April 2026?

Today, that immediate concern has eased. The successful roday, that immediate concern has eased. The successful repayment of the sukuk, settlement of a USD400 million currency swap with the Reserve Bank of India, stronger tourism performance in 2025, bilateral finanepayment of the sukuk, settlement of a USD400 million currency swap with the Reserve Bank of India, stronger tourism performance in 2025, bilateral financial support, revenue reforms, and measures to improve foreign exchange inflows have changed the narrative.

This shift was reflected in June 2026 when Fitch Ratings upgraded the Maldives' Long-Term Foreign-Currency Issuer Default Rating to CCC from CC, citing reduced near-term default risk after the April repayments and continued access to bilateral and multilateral financing. Around the same time, the International Monetary Fund (IMF) concluded its 2026 Article IV mission, while the World Bank released its latest Maldives Development Update.

The Maldives has gained valuable time, but the vulnerabilities that created the recent pressures remain largely unresolved.

Taken together, the three assessments tell a consistent story: the Maldives has gained valuable time, but the vulnerabilities that created the recent pressures remain largely unresolved.

Why immediate pressure has eased

The main source of relief came from the successful management of major external obligations in April 2026, including the repayment of the USD500 million sovereign sukuk and the settlement of the USD400 million currency swap facility with the Reserve Bank of India. These payments reduced the immediate risk of missed obligations and helped avoid a disorderly episode around the April deadline.

The profile of external debt service has improved, but it remains challenging. After the April repayments, remaining external public and publicly guaranteed debt service for the rest of 2026 is estimated at around USD600 million, before declining to roughly USD450 million annually in 2027 and 2028.

The economy also benefited from strong tourism performance in 2025. Real GDP is estimated to have grown by 6.3 percent, up from 3.5 percent in 2024, driven by record tourist arrivals of around 2.25 million visitors and a rebound in fish exports. Tourism related revenues, including Tourism GST, green tax, airport departure tax, and resort rents, rose sharply, boosting both government revenue and foreign exchange earnings.

Policy measures contributed as well. Higher tourism-related taxes and fees, new foreign exchange regulations for the tourism sector, and bilateral financing support helped rebuild reserves from critically low levels.

Official reserves increased from a historic low of about USD370 million in September 2024 to USD1.3 billion in March 2026 before declining to roughly USD718 million following the April debt repayments. While this remains above the lows seen in 2024, reserve adequacy is still weak. After April, reserves covered only around 1.4 months of imports, while usable reserves, after accounting for swap positions and shortterm obligations, were significantly lower.

Near-term default risk has declined. But reduced default risk is not the same as economic resilience.

Structural vulnerabilities still dominate

Despite recognising recent improvements, all three institutions continue to flag the same structural risks.

Public debt remains among the highest in the region. Total public and publicly guaranteed debt is estimated at around 129–130 percent of GDP in 2025 and, absent significant fiscal reforms, the World Bank projects it could exceed 140 percent of GDP over the medium term.

Fiscal pressures also remain intense. The overall fiscal deficit narrowed from around 9.9 percent of GDP in 2024 to about 4.3 percent in 2025. However, much of this improvement reflected an almost 50 percent reduction in capital expenditure on a cash basis rather than deeper structural reforms. Revenues rose to roughly 33 percent of GDP, led by tourismrelated tax and nontax revenues. At the same time, recurring expenditure pressures have not disappeared, and concerns about expenditure arrears and financial stress in some sectors and stateowned enterprises are increasing.

External financing needs also remain high. Even after the April repayments, the Maldives still faces around USD600 million in external debt service obligations during the remainder of 2026. Fitch expects gross reserves to remain low relative to these obligations and projects that the current account deficit will widen substantially in 2026 as tourism receipts weaken and import bills, especially for fuel and essential goods, rise.

All three institutions highlight the country's continued dependence on tourism as a fundamental source of vulnerability. Tourism drives economic growth, government revenue, and foreign exchange earnings. While this model has delivered strong growth over many years, it leaves the economy highly exposed to external shocks, from pandemics and geopolitical crises to climaterelated disruptions.

The ongoing conflict in the Middle East illustrates this risk. Airspace closures and flight disruptions risk reducing tourist arrivals from some key markets, while higher global fuel prices and tighter financing conditions compound the shock. The World Bank projects growth to slow from 6.3 percent in 2025 to about 0.7 percent in 2026, while the IMF expects a similar slowdown to around 1 percent. For a small island economy reliant on imported food, fuel, and other essentials, global events can quickly translate into domestic economic pressures.

At the same time, the sovereign-bank nexus remains a significant concern. A large share of domestic banking sector assets is tied to government and stateowned enterprise exposures, constraining credit to the private sector and creating channels through which fiscal stress could become financial stress. Both the IMF and the World Bank identify this as a key macrofinancial risk.

FX pressures and the cost of living

One of the clearest signs that underlying vulnerabilities persist is the continued pressure on foreign exchange availability. While reserves and official support have improved the headline position, access to foreign currency through formal channels remains constrained for many individuals and businesses. The World Bank notes that foreign exchange shortages continue despite the recovery in reserves and emphasises that foreign exchange liquidity constraints have been intensifying.

A country can simultaneously experience lower default risk, improved headline reserves, and successful debt repayments while still facing foreign exchange shortages in the domestic economy.

The widening gap between the official exchange rate and the parallel market rate is one visible symptom. By late 2025, estimates suggest the parallel market rate had reached around MVR 20.35 per US dollar, compared with the official peg of MVR 15.42. More recent anecdotal reports indicate that the parallel rate may have continued to edge higher, approaching MVR 20.50 per US dollar in early 2026.

Recent adjustments by Bank of Maldives to foreign spending limits, including daily allocations for selected e-commerce platforms, monthly caps on international card transactions, travel verification requirements, and differentiated limits by account type point to the same underlying reality: foreign exchange remains scarce enough to require administrative rationing. These measures are not, by themselves, signs of an imminent crisis. Rather, they signal an environment in which foreign exchange tensions are sufficiently acute that authorities and banks must continuously manage demand.

At the same time, such controls create uncertainty for importdependent businesses and for individuals who rely on international payments for travel, education, healthcare, and online purchases. The implications extend beyond online shopping and foreign travel.

The World Bank estimates that nearly half of the Maldivian population remains vulnerable to falling into poverty, living just above the poverty line and at risk of slipping back due to economic shocks. In such a context, persistent foreign exchange shortages can contribute to higher prices for food, fuel, medicines, and other essentials, disproportionately affecting lowerincome households and those living outside the Greater Malé region. A 10 percent increase in food prices alone is estimated to raise the poverty rate by around 1.6 percentage points and increase the share of people at risk of poverty by roughly 2 percentage points, with larger impacts in the atolls.

In an import-dependent economy facing foreign exchange constraints and global price shocks, this is a direct transmission channel from macroeconomic stress to household hardship. It also helps explain why improving sovereign creditworthiness has not automatically translated into easier access to dollars for individuals and businesses. A country can simultaneously experience lower default risk, improved headline reserves, and successful debt repayments while still facing foreign exchange shortages in the domestic economy.

Three institutions, one message

Each institution approaches the Maldives from a different perspective, but their conclusions converge.

For Fitch, the key point is that default risk has diminished in the near term but remains constrained by thin external buffers, wide current account deficits, and persistent US dollar shortages.

For the IMF, the core message is that fiscal, monetary, and foreign exchange policies must be better aligned to reduce macroeconomic imbalances, place debt on a downward trajectory, preserve the exchange rate peg, and protect the most vulnerable.

For the World Bank, the emphasis is on how high debt, limited fiscal space, foreign exchange constraints, and price shocks intersect with poverty and vulnerability.

The Maldives has moved away from the immediate risk of a financing crisis, but it remains vulnerable to external shocks, foreign exchange pressures, and high debt levels.

The Maldives has gained time. Whether that time is used effectively may determine the country's economic trajectory for years to come.

Making the most of the breathing space

What would it mean, in practical terms, to use this breathing space well?

• Pursue fiscal consolidation while protecting vulnerable groups. Gradually replace blanket subsidies with targeted support and improve the efficiency of Aasandha.

  
  

• Strengthen state-owned enterprise governance, reduce quasi-fiscal activities, and address the sovereign-bank nexus.

  
  

• Prioritise high-return public investments based on economic returns, climate resilience, and social impact, while avoiding the accumulation of arrears.

  
  

• Rebuild foreign exchange reserves and manage exchange rate pressures in ways that gradually narrow the gap between official and parallel market rates while preserving stability.

  
  

• Begin a serious, evidence-based debate on the future of the exchange rate regime, including options for greater flexibility over the medium term. Any reforms should be carefully sequenced alongside fiscal consolidation, stronger reserve buffers, tighter monetary policy, and enhanced social protection. These trade-offs are explored further in the Rufiyaa Question article.

  
  

• Reduce dependence on a single sector by diversifying within tourism and developing other tradable and climate-resilient industries.

  
  

The Maldives has gained time. Whether that time is used to address the structural weaknesses identified by the IMF, Fitch, and the World Bank may determine not only the country's economic trajectory, but also the affordability of everyday life and its resilience to future shocks.