The Maldives faces a significant debt crisis, largely attributed to unsustainable lending practices by China. Total debt has surged to USD 8.2 billion, with projections of exceeding USD 11 billion by 2029. Immediate fiscal challenges include servicing USD 600 million and USD 1 billion in external debts due in 2025 and 2026, respectively. International financial institutions have downgraded the Maldives’ credit rating, necessitating urgent measures to prevent sovereign default.
The Maldives is confronting a severe debt crisis that jeopardizes its economic sovereignty, as its foreign exchange reserves diminish alarmingly while significant debt repayments are on the horizon. An article by Dimitra Staikou reveals that China’s lending practices have exacerbated the nation’s financial plight, causing total debt to escalate from USD 3 billion in 2018 to USD 8.2 billion in March 2024, with projections suggesting it could exceed USD 11 billion by 2029.
The immediate fiscal challenges are pressing, with the Maldives expected to service external debt of USD 600 million in 2025 and a staggering USD 1 billion in 2026. The usable foreign exchange reserves maintained by the Maldives Monetary Authority fell to below USD 65 million as of December 2024, a notable but insufficient recovery from a previous low of USD 21.97 million in July 2024, which briefly turned negative in mid-August.
In light of these issues, the nation’s credit ratings have faced downward revisions from international financial institutions. Fitch Ratings has downgraded the Maldives by three levels in mid-2024, and Moody’s has maintained a negative outlook regarding the government’s future creditworthiness. Furthermore, Staikou argues that the China-Maldives Free Trade Agreement (FTA) has worsened economic vulnerabilities, with Maldivian exports accounting for less than 3% of the bilateral trade, while China commands a dominant 97% share in imports.
Following the FTA’s implementation in January 2025, imports from China rose significantly, demonstrating an increase to USD 65 million, compared to USD 43 million during the same timeframe in the previous year. This surge has severely impacted government revenue from import duties, decreasing from MVR 385 million to MVR 138 million. Additionally, the FTA has allowed for increased Chinese involvement in the tourism sector, which, while beneficial in terms of tourist numbers, directs financial benefits back to Chinese entities instead of bolstering the Maldivian economy.
President Muizzu’s administration has implemented various measures to mitigate the crisis, including tax increases, divestitures of state-owned enterprises, and control measures aimed at reducing expenditures. These include the dismissal of 228 political appointees and the tapering off of indirect subsidies for essential services. However, it is projected that the Maldives will still face financing gaps exceeding USD 500 million in 2025, and USD 800 million in 2026.
To navigate the economic turmoil, the Maldives is seeking financial assistance from multiple avenues. The government has requested USD 300 million from Gulf Cooperation Council members, yet these requests have largely gone unanswered. Furthermore, appeals to China for budgetary support and debt refinancing have also been met with silence.
In a bid for temporary relief, India has provided a USD 750 million currency swap, allowing for routine import payments and government expenses; however, this measure falls short of addressing the upcoming debt service obligations, including a significant USD 1 billion Sukuk payment due in 2026. STAIkou cautioned that unless there is meaningful international intervention or a restructuring of debts, the Maldives risks following a trajectory similar to Sri Lanka toward sovereign default.
With creditors demonstrating minimal willingness to provide assistance and considering existing vulnerabilities, the Maldives stands on the brink of an economic crisis that threatens its financial independence and political integrity, further compounded by climate change risks.
In summary, the Maldives is in a precarious financial position, beset by soaring debt primarily due to China’s lending practices and unfavorable trade agreements. The government is struggling under the weight of substantial upcoming debt repayments while its foreign exchange reserves dwindle. Despite initiatives to stabilize the economy, including seeking international financial support, the risk of sovereign default looms large, echoing patterns seen in other nations burdened by unsustainable debt. Immediate intervention may be essential to avert severe repercussions for both the economy and national sovereignty.
Original Source: www.aninews.in
