IMF warns Maldives of 'high risk of foreign debt distress' amid growing ties with China

By Sunita Iyer | First Published Feb 7, 2024, 8:23 PM IST

While the IMF did not provide specific figures regarding Maldives' foreign debt, it stressed the necessity for "urgent policy adjustment" to address the situation.

The International Monetary Fund (IMF) issued a warning on Wednesday, expressing concerns over Maldives' susceptibility to "high risk of debt distress." The caution comes as Male increasingly relies on heavy borrowing from China and shifts its allegiance away from India under President Mohamed Muizzu's leadership.

Since assuming power, Muizzu, known for his pro-Beijing stance, has garnered increased funding commitments from China. Notably, he made his inaugural international visit to Beijing, expressing gratitude to China for its "selfless assistance" in providing development funds.

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While the IMF did not provide specific figures regarding Maldives' foreign debt, it stressed the necessity for "urgent policy adjustment" to address the situation.

"Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated," the IMF said after a review of the country's economy.

"The Maldives remains at high risk of external and overall debt distress".

The IMF's cautionary statement arrives amidst a backdrop where numerous South Asian nations are grappling with the repercussions of substantial borrowing from China. Pakistan and Sri Lanka, in particular, find themselves burdened with billions of dollars in debt, exacerbating economic crises within their borders. Observers note that both countries have received substantial financial assistance from Beijing, largely as part of President Xi Jinping's expansive Belt and Road Initiative (BRI).

Maldives emerged as a key player in China's strategic expansion efforts, particularly in the Indo-Pacific region. Situated strategically along the global east-west shipping lanes, the nation's chain of 1,192 tiny coral islands spans approximately 800 kilometers (500 miles) across the equator. Former President Abdulla Yameen, who governed for five years until 2018 and served as a mentor to Muizzu, heavily borrowed from Beijing for various construction projects.

The substantial borrowing has left Maldives indebted to China, with a staggering 42 percent of its over $3 billion foreign debt attributed to Beijing in 2021, as reported by the World Bank, citing data from the Maldives' finance ministry.

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