Maldives declares bankruptcy, Seeking IMF Bailout and Navigating China Relations: Reports

Defense News ,Maldives :- On February 16, 2024, an unconfirmed Twitter post suggested that the Maldives has declared bankruptcy and is seeking financial assistance from the IMF.

The Maldives, an island nation strategically located in the Indian Ocean, heavily relies on tourism and is largely funded by China. In 2020, the Maldivian government received financial support, including loans of USD 196 million, USD 28.9 million from the IMF's Rapid Credit Facility, and USD 56 million in grants from the IMF.

The International Monetary Fund (IMF) issued a warning on February 7, 2023, indicating a high risk of 'debt distress' for the Maldives due to its increasing ties with China. The nation is currently under the governance of a pro-China government led by President Mohamed Muizzu.

Since Muizzu became president in November of the previous year, China has promised additional funding to the Maldives. During a recent visit to China, Muizzu expressed gratitude for the nation's support in the form of "selfless assistance" for development funds.

The IMF, in its report, called for "urgent policy adjustment" without specifying details about the Maldives' foreign debt. It warned that without significant policy changes, fiscal deficits and public debt would remain high, posing a continued risk of external and overall debt distress for the Maldives.

The Maldives' economy, heavily dependent on tourism, suffered during the Covid pandemic, but the nation has taken measures to boost tourism, such as expanding airports and increasing the number of hotels. Despite these efforts, the IMF expressed caution, stating that uncertainties surrounding the economic outlook remain high, with risks leaning toward the downside.

During the presidency of Abdulla Yameen, the Maldives borrowed extensively from China for construction projects, resulting in more than 42% of the country's $3 billion foreign debt owed to China in 2021, according to the World Bank.

As the Maldives becomes closer to China, it is distancing itself from India. Indian troops operating three reconnaissance aircraft in the Maldives have been instructed to leave by May 10. Meanwhile, President Muizzu has pledged to strengthen the nation's military to defend its extensive maritime territory.