Maldives : The Case
Despite strong post-pandemic growth, the Maldives is at high risk of debt panic, the International Monetary Fund (IMF) has warned.
“Without a significant policy change, the overall fiscal deficits and public debt are projected to stay high, and Maldives remains at high risk of external and overall debt hazard,” IMF said, calling for “urgent policy adjustment”. The assessment echoed the World Bank’s earlier assessment, of the fiscal strain facing the Indian Ocean archipelago.
Acknowledging the challenge, President Mohamed Muizzu recently told parliament that his government would adopt reform policy to improve the country’s finances and bring debt and fiscal conditions to sustainable standards.
What IMF Says:
IMF staff issued the statement on Wednesday, as part of their “preliminary findings” from their mission to the Maldives. As tourist arrivals are expected to rise further, the island nation’s economy is projected to grow at 5.2% in 2024, IMF said. Further, the expansion of the Velana airport terminal and likely increase in hotel accommodations capacity is projected to boost growth potential, it said.
During his visit to China in January this year, Mr. Muizzu sought Beijing’s assistance in the second phase of the airport’s expansion. On the other hand, Beijing has “agreed” to discuss a possible deferment of the debt the Maldives owes the Asian giant, Mr. Muizzu announced on his return. China is the Maldives’s largest bilateral creditor and supporter, and the island owes about $1.4 billion to Beijing. The World Bank has estimated that the Maldives’s debt to GDP-ratio will remain over 115% this year.
Maldives has been in picture since it has decided to push out India’s troops. India has been working as a true neighbor and has been helping the country since decades, to stabilize Maldives and also to even supply the needy goods, on time. India even has supplied water when Maldives was having a shortage.
After recent elections, Maldivians has seen a great dip for the support for India by its recent government, rather there looks a support for China. Post this, Maldives has seen a great dip in terms of Indian tourists that tour it, for any film shoots, or any other occasions.
Even though Maldives has not gone bankrupt as media reports would have us believe, Male is heavily leveraged with external debt mounting to nearly USD 4.038 billion and the internal debt nearly matching the figure with debt crisis looming ahead in 2026. Maldives owes China $1.37 billion, adding up to about 40% of the country’s public debt, according to World Bank data. That makes Beijing its biggest bilateral creditor.
Muizzu, who assumed power in November last year, has tilted towards China, which is counted among the major lenders to Male. He said there were difficulties in carrying out development projects while “we are trying to manage debt”. “I want to carry out more development projects. But this is why we cannot start all the stalled projects and launch new projects in all the islands at once,” he said.
Last month, when Muizzu visited China, several people warned him about Beijing’s debt-trap policy. Male has taken massive loans from China. The China Development Bank, the Industrial and Commercial Bank of China, and the Export-Import Bank of China hold over 60 per cent of Maldives’ sovereign debt, according to a report by the Observer Research Foundation (ORF).
A month before Muizzu took over as President, the World Bank said growing external and fiscal vulnerabilities were posing risks to the Maldivian economy, particularly if Male continues to borrow at high costs. It said by 2026, the $5.4 billion Maldivian economy will have to service a record $1.07 billion in external debt.
Asia’s Nikkei reported that the bank’s latest assessment added to existing concerns about Male’s obligation to spend an average of $300 million a year to service foreign debt from 2022 to 2024. “Despite expectations of reduced deficits, Maldives’ total debt is set to remain high at over 115% of GDP,” it has said.
Faris H Hadad-Zervos, World Bank Country Director for Maldives, said that the island country was expecting a strong growth of 6.5 per cent this year. “However, to ensure a more resilient economy going forward, and to build on the recent reforms, prudent debt management and a fiscal adjustment with strengthened investment planning are needed in the context of tightened global conditions and already elevated fiscal deficits.”
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