ATHENS: The Maldives is grappling with a mounting debt disaster that threatens its financial sovereignty, as overseas trade reserves dwindle to precarious ranges whereas substantial debt repayments loom. In line with an article by human rights advocate and freelance journalist Dimitra Staikou on Medium, China’s lending practices and commerce insurance policies have considerably accelerated the island nation’s monetary deterioration.
“The dimensions of the debt downside is staggering. The Maldives’ whole debt inventory has ballooned from USD Three billion in 2018 to USD 8.2 billion as of March 2024, with projections indicating an additional enhance to greater than USD 11 billion by 2029. Of the present debt, USD 3.four billion is exterior, with China and India being the first collectors,” Dimitra wrote.
The rapid monetary problem is daunting, with the Maldives needing to service exterior debt price USD 600 million in 2025 and a staggering USD 1 billion in 2026. Usable overseas trade reserves held by the Maldives Financial Authority stood at beneath USD 65 million as of December 2024, an enchancment from the alarming low of USD 21.97 million in July 2024. Nevertheless, reserves briefly turned detrimental in mid-August, underscoring the severity of the steadiness of funds disaster.
In response, worldwide monetary establishments have downgraded the nation’s credit standing. Fitch lowered the Maldives’ ranking by three notches in consecutive cuts made in June and August, whereas Moody’s maintained a detrimental outlook for the federal government’s long-term native and overseas forex issuer ranking.
Dimitra highlighted that the China-Maldives Free Commerce Settlement (FTA), applied in January 2025, has worsened the nation’s financial vulnerabilities moderately than offering aid. “Of the roughly USD 700 million in bilateral commerce, Maldives exports comprise lower than Three per cent in comparison with China’s dominating 97 per cent import share. Beneath the FTA, Maldives eliminated tariffs on 91 per cent of products from China, a concession that has yielded little reciprocal profit given the nation’s slender export base,” she wrote.
Inside two months of the FTA’s implementation, imports from China surged to USD 65 million, up from USD 43 million throughout the identical interval the earlier 12 months. Extra regarding is the drastic decline in authorities income from import duties, which fell by 64 USD –from MVR 385 million to simply MVR 138 million.
The settlement has additionally opened the Maldivian tourism sector to Chinese language firms and monetary establishments. Whereas Chinese language vacationers contribute considerably to customer numbers, monetary advantages more and more movement again to Chinese language firms moderately than strengthening the Maldivian economic system. President Muizzu’s authorities has applied quite a few measures to deal with the disaster, together with rising the Vacationer GST tax charge from 16 per cent to 17 per cen, doubling the inexperienced tax, and imposing departure taxes and airport growth charges. The federal government has additionally begun divesting stakes in state-owned enterprises and approving mergers of key firms, together with Maldives Airports Firm Ltd. and Regional Airports Firm Ltd.
Aggressive expenditure management measures have additionally been applied, together with the termination of 228 political appointees, phasing out oblique subsidies for meals, electrical energy, and gasoline, and prioritizing present public sector funding packages. Regardless of these complete efforts, estimates counsel that the Maldives will nonetheless face a financing hole of greater than USD 500 million in 2025 and USD 800 million in 2026.
In response to the disaster, the Maldives has sought monetary help from a number of sources. The federal government has requested USD 300 million from every of the Gulf Cooperation Council (GCC) nations, however these requests have largely gone unheeded. Equally, President Muizzu’s appeals to China for USD 200 million in finances help from the China Growth Financial institution, refinancing of debt service funds, and a forex swap have obtained no optimistic response.
A USD 750 million forex swap from India has offered some short-term aid for routine import funds and authorities expenditures. Nevertheless, this measure is inadequate to cowl upcoming debt service funds, together with the USD 1 billion Sukuk compensation due in 2026. Dimitra warned that the Maldives’ state of affairs mirrors a sample seen in different nations the place Chinese language loans and commerce agreements have led to unsustainable debt burdens.
“With out vital worldwide intervention or debt restructuring, the Maldives dangers following neighboring Sri Lanka into sovereign default,” she wrote. With collectors displaying little willingness to supply help, the Maldives faces an impending financial disaster that might have far-reaching implications for its monetary independence and political sovereignty. This dire monetary state of affairs compounds the existential risk the low-lying island nation already faces from local weather change.
