On February 7, the International Monetary Fund (IMF) issued a warning regarding the Maldives, a strategically positioned nation in the Indian Ocean. The Maldives, which has borrowed extensively from China and altered its allegiance to India, is now facing a significant threat of “debt distress.”
Since assuming power in November, President Mohamed Muizzu, who is known for his pro-China stance, has secured additional funding from Beijing for the Maldives.
In a recent visit to China, Mr. Muizzu expressed his gratitude for the “selfless assistance” provided by China in terms of development funds. While the exact details of the Maldives’ foreign debt have not been disclosed by the International Monetary Fund, they have emphasized the necessity for “urgent policy adjustment” to address the situation.
The IMF has stated that if there are no substantial policy adjustments, the country’s economy will continue to face elevated fiscal deficits and public debt. Additionally, the Maldives is still considered to be at a high risk of external and overall debt distress.
The archipelago, renowned for its pristine sandy beaches and where the tourism sector contributes to almost a third of the economy, has made a remarkable recovery from the economic impact of the COVID-19 pandemic.
However, despite the anticipated growth from an upcoming airport expansion and an increase in hotel establishments, the International Monetary Fund (IMF) has expressed concerns about the uncertain future outlook and the presence of downside risks.
Former President Abdulla Yameen, who served a five-year term until 2018, heavily relied on borrowing from Beijing to fund various construction projects. As a result, China currently holds 42% of the Maldives’ foreign debt, which amounts to over $3 billion in 2021, as reported by the World Bank, citing the Maldives’ Finance Ministry.