IMF Warns Maldives of Debt Risks as Chinese Loans Increase | Global News

The Maldives is facing a warning from the International Monetary Fund about the risk of “debt distress” as the country looks to borrow more from its main creditor, China. President Mohamed Muizzu has shifted the nation’s focus towards Beijing since taking office, winning parliamentary elections in a landslide after promising ambitious development projects with Chinese funding.

The IMF has highlighted the Maldives’ high risk of debt distress without significant policy changes, urging the country to raise revenue, cut spending, and reduce external borrowing to avoid a major economic crisis. With a foreign debt reaching $4.038 billion last year, about 118 percent of GDP, and China owning a significant portion of that debt, concerns are growing about the country’s financial stability.

Neighboring Sri Lanka’s struggles with Chinese debt serve as a cautionary tale for the Maldives. Sri Lanka defaulted on its foreign debt in 2022 and had to hand over a strategic port to a Chinese state company on a long-term lease due to financial difficulties. This has raised concerns about China’s use of “debt traps” to exert influence in the region, including in the Indian Ocean.

As the Maldives navigates its economic challenges and growing debt burden, the government faces tough decisions on how to manage its finances and ensure sustainable development without falling into a debt trap. The country’s reliance on tourism and strategic location make it a key player in the region, but careful financial planning will be crucial to avoid a potential economic crisis.