Maldives faces rising debt challenges amid Chinese influence

In an article by Nesweek, the Maldives is now grappling with escalating international debt, primarily owed to China, adding to the financial pressures faced by many of India’s neighboring countries. The piece delves into Chinese investment in infrastructure—ranging from bridges and ports to airports—which has left several South Asian nations, including Pakistan, Sri Lanka, and Bangladesh, struggling to manage substantial loans.

This situation has led to allegations of "debt-trap diplomacy," a term popularized during the Trump administration, suggesting that China lends to financially vulnerable countries to gain control over strategic assets when they default. China, however, has denied these claims.

Sri Lanka's recent financial troubles, including a default on its external debt and a subsequent restructuring deal with China's Export-Import Bank, underscore the significant impact of Chinese loans.

The Maldives is similarly burdened, with China holding $1.37 billion of its $8 billion public debt, making it the largest creditor to the island nation. The Maldives' debt reached 122.9 percent of its GDP in 2023, and the country has sought additional aid from Bangladesh, securing a $200 million loan to help stabilize its economy.

New Maldivian President Mohamed Muizzu, who took office in November, has faced criticism for his handling of the economic situation. His recent visit to Beijing aimed to renegotiate existing loans and explore further collaboration with China under the Belt and Road Initiative.

Despite this, the Maldives' economic outlook remains troubled, with Fitch Ratings downgrading its credit rating and the IMF urging urgent reforms to manage fiscal deficits and debt.

Former Maldivian official Mohamed Maleeh Jamal criticized Muizzu’s administration for delaying necessary reforms and failing to effectively manage the country's foreign policy and state enterprises. Meanwhile, some experts argue against the "debt-trap diplomacy" theory, suggesting that China has been willing to restructure loans and provide grace periods, though the approach to managing financial risks in international projects continues to evolve.