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International Monetary Fund (IMF) Warns Maldives of “High Risk of Debt Distress” Amid Heavy Borrowing from China

The International Monetary Fund (IMF) issued a warning on February 7, stating that the Maldives, strategically located in the Indian Ocean and heavily borrowing from China, is at a “high risk of debt distress.” The IMF called for urgent policy adjustments, emphasizing the need for significant changes to address the elevated fiscal deficits and public debt. While the Maldives, known for its tourism-dependent economy, has rebounded from the COVID-19 pandemic, the IMF highlighted uncertainties in the economic outlook and noted that risks are tilted to the downside. The country’s debt situation has been exacerbated by substantial borrowing from China, raising concerns about external and overall debt distress.

Photo Credit- Reuters

The current pro-China President, Mohamed Muizzu, who came to power in November, has deepened ties with Beijing, securing additional funding. However, the IMF did not provide specific details about the Maldives’ foreign debt. The archipelago, under former President Abdulla Yameen, accumulated significant debt from China for infrastructure projects, resulting in over 42% of the country’s foreign debt owed to China in 2021. Despite recovery efforts, the IMF underscores the importance of policy adjustments to avoid a potential debt crisis and maintain economic stability.

The Maldives, known for its idyllic white sand beaches, heavily relies on tourism, accounting for nearly one-third of its economy. As the country plans airport expansions and hotel increases to stimulate growth, the International Monetary Fund (IMF) emphasizes the importance of addressing uncertainties and potential downside risks. President Muizzu’s expressed gratitude for China’s support in development funds, but the IMF’s cautionary note underscores the need for careful economic management to prevent a looming debt crisis.

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