The Maldives are at a high risk of experiencing “debt distress,” according to the International Monetary Fund (IMF), given their growing proximity to China. A pro-China administration currently rules the strategically significant country.
Beijing has promised to provide more funding for the island nation since Mohamed Muizzu took office as president of the Maldives in November of last year. Muizzu expressed gratitude to China last month for the country’s “selfless assistance” in providing development funds.
The IMF demanded “urgent policy adjustment” and cautioned against the risk of “debt distress,” but it withheld information regarding the Maldives’ foreign debt.
The IMF stated following an analysis of the national economy that “the overall fiscal deficits and public debt are projected to stay elevated without significant policy changes.” As per the IMF report, “the Maldives is still highly vulnerable to external and general financial difficulties.”
Due to its reliance on tourism, the Maldives’ economy was severely harmed by the Covid pandemic. Nonetheless, the archipelago has overcome the pandemic’s economic effects.
The island nation is choosing various strategies to promote tourism, such as expanding its airport and building more hotels. The IMF stated that although increased infrastructure is expected to lead to a rise in tourism, “uncertainty surrounding the outlook remains high and risks are tilted to the downside.”
Under former President Abdulla Yameen’s administration, the Maldives took out large loans from China for building projects. By 2021, the World Bank estimates that the Maldives owed China about 42% of its total foreign debt of over $3 billion.
The Maldives is moving away from India as it gets closer to China. By May 10, Indian soldiers flying three reconnaissance aircraft in the Maldives are expected to depart. In the meantime, Muizzu has promised to bolster the armed forces of the country in order to protect its extensive maritime borders.
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