The Maldives is experiencing a severe debt crisis, with its total liabilities rising from USD 3 billion in 2018 to USD 8.2 billion in March 2024. Key challenges include the need to service USD 600 million in 2025 and USD 1 billion in 2026, compounded by dwindling foreign exchange reserves and unfavorable trade agreements with China. International financial institutions have downgraded the country’s credit ratings, and the government is searching for assistance to avert a potential sovereign default, while also grappling with climate change threats.
The Maldives is currently facing a severe debt crisis, jeopardizing its economic sovereignty as foreign exchange reserves diminish. The islands’ total debt has escalated remarkably, increasing from USD 3 billion in 2018 to USD 8.2 billion by March 2024, with predictions suggesting it could reach over USD 11 billion by 2029. External debt comprises USD 3.4 billion, primarily owed to Chinese and Indian creditors.
The Maldives is confronted with substantial immediate debt obligations, required to service external debt of USD 600 million in 2025 and USD 1 billion in 2026. As of December 2024, usable foreign exchange reserves stood at below USD 65 million, a significant improvement from USD 21.97 million in July 2024. Nonetheless, reserves have fluctuated negatively, signaling a severe balance of payments crisis.
Reactions from international financial institutions have been severe, with Fitch dropping the country’s credit rating significantly and Moody’s maintaining a negative outlook on the long-term local and foreign currency issuer rating. The China-Maldives Free Trade Agreement (FTA), which commenced in January 2025, has compounded economic vulnerabilities rather than alleviating them, with Maldives exports constituting less than 3% of the trade.
Following the FTA’s implementation, imports from China rose markedly, leading to a drastic decline in government revenue from import duties. Although Chinese tourism is significant, economic gains appear to benefit Chinese firms more than the Maldivian economy. In response, President Muizzu’s administration has implemented various measures, such as increasing taxes and divesting from state-owned enterprises, while facing an estimated financing gap exceeding USD 500 million in 2025.
Furthermore, the Maldivian government has sought financial aid from various entities, including USD 300 million from Gulf Cooperation Council countries and USD 200 million from China. However, these requests have largely gone unanswered. While a USD 750 million currency swap from India offers temporary relief, it is insufficient for looming debt repayments.
Dimitra Staikou cautioned that the Maldives’ predicament is similar to patterns observed in other nations burdened by Chinese loans, emphasizing that without significant international assistance or debt restructuring, the Maldives risks entering sovereign default like Sri Lanka. Creditor unwillingness to extend assistance heightens the risk of an impending economic crisis, also exacerbated by the existential threats posed by climate change.
In conclusion, the Maldives’ escalating debt crisis, exacerbated by China’s loan practices and unfavorable trade agreements, poses a serious threat to its economic sovereignty. With substantial external debt obligations looming and diminishing foreign exchange reserves, international financial institutions are flagging concern. Urgent measures are needed to prevent a sovereign default, yet international support appears elusive. Consequently, the Maldives faces a precarious future, contending with both financial instability and the ongoing challenges posed by climate change.
Original Source: www.aninews.in
