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Maldives Faces Foreign Debt Crisis Post China Loans: IMF

Maldives President thanked China last month for its "selfless assistance"

The Maldives, situated strategically in the Indian Ocean, is grappling with a significant risk of "debt distress," according to a warning from the International Monetary Fund (IMF) on Wednesday. This heightened risk is attributed to the nation's substantial borrowing from China and a notable shift in allegiance away from India. Since President Mohamed Muizzu, known for his pro-China stance, assumed power in November, Beijing has pledged additional funding to the Maldives.

In a recent visit to Beijing, Muizzu expressed gratitude to China for its "selfless assistance" in providing development funds. The IMF, while not providing specific details on the Maldives' foreign debt, stressed the necessity for "urgent policy adjustment" to address elevated fiscal deficits and public debt levels. The overall fiscal outlook for the Maldives is projected to remain challenging without significant policy changes, as outlined in the IMF's review of the country's economy.

Despite economic recovery from the impacts of the COVID-19 pandemic, the IMF highlighted uncertainties and downside risks. Planned infrastructure projects, including airport expansion and increased hotel capacity, are expected to contribute to economic growth. However, the IMF cautioned that uncertainties surrounding the economic outlook are high.

Muizzu's predecessor, former President Abdulla Yameen, who led the nation for five years until 2018, heavily borrowed from Beijing for various construction projects. As a result, in 2021, over 42% of the Maldives' foreign debt was owed to China, according to the World Bank, citing the Maldives' finance ministry.

While the Maldives' economy heavily relies on tourism, accounting for nearly a third of its economic activity, concerns persist over the country's high debt levels. Muizzu, following in Yameen's footsteps, has expressed a commitment to strengthening the military to defend the Maldives' vast maritime territory. In a notable move, Muizzu has requested the withdrawal of Indian troops operating three reconnaissance aircraft in the Maldives by May 10. The nation's chain of 1,192 tiny coral islands, extending approximately 800 kilometers across the equator, plays a crucial role as global east-west shipping lanes pass through its waters

Feb. 8, 2024 6:07 p.m. 2136

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