Maldives’ Debt Crisis: China Loans, India Strains and Economic Turmoil

The diplomatic row deepened as Maldives' leaders persisted in their derogatory remarks against PM Modi, further straining bilateral relations.

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Maldives finds itself in a precarious economic situation, grappling with the weight of its substantial debts owed to China, amounting to over $3 billion. The International Monetary Fund (IMF) has issued a stark warning, flagging the island nation as being at high risk of ‘debt distress,’ particularly in light of its burgeoning ties with China.

Since the ascension of Mohamed Muizzu to the presidency in November 2023, Maldives has fostered increasingly cordial relations with China, with assurances of additional financial support from Beijing. Muizzu’s visit to China in January 2023 was marked by expressions of gratitude for China’s contributions to Maldives’ development funds, solidifying the growing partnership.

However, the IMF’s recent report has sounded the alarm for urgent policy adjustments in Maldives to address its mounting fiscal deficits and public debt. Without significant reforms, the nation is projected to remain mired in economic challenges, maintaining its vulnerability to external and overall debt distress.

Compounding the economic woes are strained relations with India, a significant development partner for Maldives. The deterioration in bilateral ties has further exacerbated the financial crisis, with President Muizzu acknowledging the government’s inability to initiate new development projects amidst the country’s dire financial straits.

The rift between Maldives and India escalated following Muizzu’s assumption of power, with the president’s inclination towards China casting a shadow over traditional alliances. The fallout has been significant, impacting various sectors, including tourism, upon which Maldives heavily relies for revenue.

The tourism sector, a cornerstone of the Maldivian economy, suffered a severe setback following disparaging remarks made by a former minister and other leaders against Indian Prime Minister Narendra Modi. These comments triggered widespread condemnation and calls for a boycott of Maldives among Indian citizens.

In response to the boycott calls, travel agencies such as EaseMyTrip suspended all flight bookings to Maldives, urging Indians to explore alternative destinations within India, notably Lakshadweep. This sentiment was echoed by prominent figures like Virender Sehwag and Akshay Kumar, who advocated for domestic tourism.

The diplomatic row deepened as Maldives’ leaders persisted in their derogatory remarks against PM Modi, further straining bilateral relations. President Muizzu’s demand for the withdrawal of Indian troops stationed in Maldives has added another layer of complexity to the diplomatic standoff.

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