The International Monetary Fund (IMF) has warned Maldives of being at a high risk of debt distress amid increasing proximity with the Peoples Republic of China (PRC). The strategically important nation is currently governed by a pro-China government.
While warning about the risk of debt distress, the IMF called for urgent policy adjustment without giving the details of Maldives foreign debt. “Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated, the IMF said after a review of the island nations economic profile. “The Maldives remains at a high risk of external and overall debt distress,” the IMF said in a report.
The Maldives economy, heavily dependent on tourism suffered intensely and immensely during the COVID-19 Pandemic. However, the archipelago has recovered economically from the impact of the pandemic.
The island nation is opting for different measures to boost tourism like airport expansion and increase in the number of hotels. Despite an expectation of growth in tourism with a boost to infrastructure, the IMF said “uncertainty surrounding the outlook remains high and risks are tilted to downside.”
During the regime of President Abdullah Yameen, the Maldives borrowed heavily from China for construction projects. As a result, the Maldives owed around 42 percent of it more than 3-billion-dollar debt to China in 2021 according to the World Bank. The current president Muizzu is an ardent follower of his mentor, which in this case was Abdullah Yameen.
Since the rise of Mohamed Muizzu as the president of Maldives in November 2023, Beijing has pledged more funding for the island nation. During his visit to China in January 2024, Muizzu thanked China for selfless assistance for development funds. China and Maldives upgraded their bilateral ties and signed 20 key agreements including one in which Beijing pledged to extend funding for infrastructure in the Indian Ocean archipelago.
With increase in proximity with China, the Maldives has distanced itself from India. The Indian troops operating three reconnaissance aircraft have been directed to leave by May 10, 2024. Muizzu has also pledged and vowed to strengthen his country’s military to defend the vast maritime territory.
The warning by the monetary agency came a day after President Muizzu conceded that he could not launch new developmental projects in the country due to the debt situation.
“I want to carry out more development. But this is why we cannot start all the stalled projects in all the islands at once said Muizzu. “The next two months will be most difficult. This is the most critical time. It will become much easier after July. But we are starting now to do the work necessary to earn income,” he added.
