Maldives, which has borrowed heavily from China and shifted allegiance from India, is at high risk of ‘debt distress,’ the IMF warned Wednesday.
While the IMF did not give details of Maldives’ foreign debt, it said there was a need for ‘urgent policy adjustment.’
Many experst believe based on geopolitical shifts that Maldives is relying in increased funding by China, since pro-China President Mohamed Muizzu took power in November, in a departure from erstwhile friendly Indo-Maldidivain ties
Muizzu thanked China on an official visit last month for its ‘selfless assistance’ in providing development funds.
The International Monetary Fund said ‘Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated,’ after a review of the Maldivian economy.
‘The Maldives remains at high risk of external and overall debt distress,’ it observed.
Tourism accounts for nearly a third of the economy on the archipelago famed for is white, sandy beaches and crystal blue waters and like other global hostspots, COVID-19 hit the economy hard.
According to the World Bank which cited the Maldives’ finance ministry, the coubtry owed 42% of its more than $3 billion foreign debt to China as of 2021, on account of this big-ticket expansiom.
‘Maldives’ economy in trouble’: Muizzu says can’t launch development projects
Now though, the President says that further development is difficult.
Muizzu on Tuesday said he ‘cannot launch any new development projects due to the debt situation in the country.’
According to Male-based news outlet Adhadhu, Muizzu said he did not want to mislead the public about the economic situation that his administration ‘inherited.’
Under pressure from critics who had been complaining about stalled projects, the president decided to talk about the real situation of the economy.
‘The next two months will be the most difficult. This is the most critical time,’ he said during a visit to one of the country’s islands, Guraidhoo.
‘It will become much easier after July. But we’re starting now to do the work necessary to earn income,’ he added.
Muizzu’s presidency thus far has seen Male’s relationship with New Delhi take a hit and it is not just the government debts but the borrowings of the state-owned enterprises that were also high.
‘I am trying sincerely to bring sustainable development in its true meaning. It won’t be something that produces results if I set down foundation stones in the common manner of the past without considering the reality because there is an election ahead,’ he said.
Muizzu, who assumed power in November last year, has tilted towards China, which is counted among the major lenders to Male.
‘I want to carry out more development projects. But this is why we cannot start all the stalled projects and launch new projects in all the islands at once,’ he said, about the increasing debt.
Muizzu has met with officials from the World Bank and the IMF and they agreed that the solution to improve the country’s economy was to implement the government’s policies.
“We will tell you what can be done and what will be done. Some things might take longer. We will be honest and true to our word,” he said.
Before Muizzu took over as President, the World Bank said ‘growing external and fiscal vulnerabilities’ were posing risks to the Maldivian economy, at the current target of borrowing.
By 2026, the $5.4 billion Maldivian economy will have to service a record $1.07 billion in external debt.
Asia Nikkei reported that the bank’s latest assessment added to existing concerns about Male’s obligation to spend an average of $300 million a year to service foreign debt from 2022 to 2024.
‘Despite expectations of reduced deficits, Maldives’ total debt is set to remain high at over 115% of GDP,’ it has said.
Growth expectations are in the range of about 6.5 per cent this year, but debt management and a fiscal adjustment with strengthened investment planning are needed in the context of global conditions, especially in the tourism industry for the island nation.
China displaces India as largest tourism market for Maldives
Growing tensions between India and Maldives as the latter tilts towards China
India sends submarine to Sri Lanka ahead of Chinese spy ship’s visit to the Maldives
Global east-west shipping lanes pass through the strategically located Maldive’s chain of 1,192 tiny coral islands, stretching around 800 kilometres (500 miles) across the equator and any strain in relations with India is bound to impact trade routes.
In further developments of the government cosying up to China, Maldives President Mohamed Muizzu’s government on 23 January accepted China’s diplomatic request to allow the ‘research vessel’ Xiang Yang Hong 03 to dock at the main port in Malé, disregarding India’s security concerns.
The Sri Lankan government under President Ranil Wickremesinghe decided not to allow China’s research vessels to dock at Sri Lankan ports or operate in the exclusive economic zone of the country for a year.
The Indian Navy’s INS Karanj meanwhile docked at Colombo Port ahead of the arrival of China’s People Liberation Army (PLA) Navy’s ‘research vessel’, Xiang Yang Hong 3, in Malé on 8 February, which is being seen as a diplomatic win for India.
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