IMF warns Maldives of high ‘debt distress’ risk amid growing reliance on China, calls for ‘urgent policy adjustment’

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The International Monetary Fund (IMF) on Wednesday warned the Maldives of being at a high risk of ‘debt distress’ amid increasing proximity with China. The strategically important nation is currently governed by a pro-China government.
Since the rise of Mohamed Muizzu as Maldives President in November last year, Beijing has pledged more funding for the island nation. During his visit to China last month, Muizzu thanked the nation for its “selfless assistance” for development funds.
While warning about the risk of ‘debt distress’, the IMF called for “urgent policy adjustment” without giving details of the Maldives’ foreign debt.
“Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated,” the IMF said after a review of the country’s economy. “The Maldives remains at high risk of external and overall debt distress,” said the IMF in its report.
The Maldives’ economy, heavily dependent on tourism, suffered immensely during the Covid pandemic. However, the archipelago has recovered economically from the impact of the pandemic.
The island nation is opting for different measures to boost tourism like airport expansion and an increase in the number of hotels. Despite an expectation of growth in tourism with a boost in infrastructure, the IMF said, “uncertainty surrounding the outlook remains high and risks are tilted to the downside.”
During the tenure of former president Abdulla Yameen, the Maldives borrowed heavily from China for construction projects. As a result, the Maldives owed around 42% of its more than $3 billion foreign debt to China in 2021, according to the World Bank.
With increasing proximity to China, the Maldives is distancing itself from India. The Indian troops operating three reconnaissance aircraft in the Maldives have been directed to leave by May 10. Meanwhile, Muizzu has vowed to strengthen the nation’s military to defend the country’s vast maritime territory.

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