The Maldives is facing a deteriorating economic situation, with its tourism and maritime-dependent economy sinking into debt. The International Monetary Fund (IMF) issued a warning, highlighting the Maldives’ high risk of ‘debt distress,’ especially as it grows closer to China. The nation, strategically important due to its geographical location, is currently under the governance of a pro-China administration.
Since President Mohamed Muizzu took office in November last year, the Maldives has seen increased financial commitments from China. Muizzu expressed gratitude to China during his recent visit, acknowledging its significant assistance in development funds.
While stressing the risk of ‘debt distress,’ the IMF emphasized the need for urgent policy adjustments, although specifics regarding the Maldives’ foreign debt were not provided.
According to the IMF, without substantial policy changes, the country’s fiscal deficits and public debt are expected to remain high. The report stated that the Maldives continues to face a high risk of both external and overall debt distress.
Although heavily reliant on tourism, the Maldives suffered severe economic setbacks during the Covid-19 pandemic. Despite efforts to boost tourism through airport expansions and increased hotel capacities, the IMF cautioned that uncertainties persist, with risks tilting towards the downside.
Under the previous administration led by Abdulla Yameen, the Maldives borrowed extensively from China for infrastructure projects. As a result, over 42% of the country’s foreign debt, exceeding $3 billion, was owed to China in 2021.
With its growing ties with China, the Maldives has been distancing itself from India. Indian troops, conducting reconnaissance operations in the Maldives, have been instructed to leave by May 10. Meanwhile, President Muizzu has pledged to bolster the nation’s military to safeguard its extensive maritime territory.
