The Maldives is experiencing a debt crisis due to China’s lending practices, with total debt rising from USD 3 billion in 2018 to USD 8.2 billion in 2024, projected to exceed USD 11 billion by 2029. The country faces significant repayment obligations and dwindling foreign reserves, prompting credit downgrades. The China-Maldives FTA has worsened economic vulnerabilities, and without international assistance, a sovereign default looms.
The Maldives is facing a severe debt crisis, with foreign exchange reserves at critical levels and significant debt repayments approaching. A report highlights how China’s lending and trade practices have exacerbated the island nation’s financial issues. The Maldives’ total debt has escalated from USD 3 billion in 2018 to USD 8.2 billion in March 2024, projected to surpass USD 11 billion by 2029, of which USD 3.4 billion is external debt owed mainly to China and India.
The upcoming repayments pose substantial challenges, with USD 600 million due in 2025 and an alarming USD 1 billion in 2026. The usable foreign exchange reserves dropped to under USD 65 million by December 2024, amidst earlier lows of USD 21.97 million, reflecting a critical balance of payments crisis. The situation prompted credit rating agencies like Fitch to downgrade the Maldives’ rating significantly in recent months, leading to a negative outlook from Moody’s as well.
Furthermore, the China-Maldives Free Trade Agreement (FTA), enacted in January 2025, has compounded the country’s economic vulnerabilities rather than alleviate them. The Maldives exports less than 3% of the USD 700 million bilateral trade, with China accounting for the remaining 97% in imports. Under the FTA, the Maldives eliminated tariffs on most Chinese goods, yet this concession provided little reciprocal economic benefit, considering the nation’s limited export capacity.
Following the agreement’s implementation, Maldivian imports from China rose sharply to USD 65 million, exacerbating fiscal pressures by causing a dramatic reduction in government revenue from import duties, which fell by 64% from MVR 385 million to MVR 138 million. The FTA also facilitated increased intervention by Chinese companies in the Maldivian tourism sector, where profits predominantly favor Chinese entities over local economic strengthening.
To counter the crisis, President Muizzu’s administration has initiated several measures, such as raising the Tourist GST tax rate and implementing stricter controls on expenditures, including reducing political appointments. Despite these efforts, projections indicate a financing gap of USD 500 million in 2025 and USD 800 million in 2026.
Additionally, the Maldives is seeking extensive financial assistance but has seen minimal success; requests for USD 300 million from GCC nations and USD 200 million from the China Development Bank have yet to yield results. AUSD 750 million currency swap arrangement with India offered temporary ease but does not meet future repayment obligations.
The Maldives’ burgeoning debt resembles trends observed in other countries that have entered into expansive agreements with China, raising concerns about following Sri Lanka into sovereign default without substantial international intervention for debt restructuring.
As creditors remain largely unresponsive, the Maldives could face profound economic ramifications that threaten its financial autonomy alongside the existential challenges of climate change affecting the nation.
The Maldives’ escalating debt crisis, driven by China’s lending practices and unfavorable trade agreements, poses a severe threat to its economic sovereignty. With debt repayments looming and dwindling foreign exchange reserves, the nation faces significant financial challenges. Existing government measures are inadequate to cover the anticipated financing gaps, further complicating the situation. Without international intervention for debt restructuring, the Maldives risks a crisis similar to that of neighboring Sri Lanka, jeopardizing its financial independence and political stability.
Original Source: www.aninews.in
