The Maldives (Commonwealth Union)_ Fitch Ratings expressed concern over the Maldives’ economic stability, warning of potential debt troubles and downgrading the island nation’s credit rating. The international credit agency highlighted the risk of a sovereign default on its foreign loans. According to Fitch, the downgrade to ‘CCC’ reflects the Maldives’ dwindling foreign currency reserves, which fell to $492 million in May. The agency pointed out that the government faces significant debt servicing obligations of $409 million this year, exacerbating financial stress.
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Six weeks earlier, the International Monetary Fund (IMF) had cautioned the Maldives about impending debt distress, emphasizing the country’s increasing reliance on borrowing, particularly from its primary lender, China. President Mohamed Muizzu, who assumed office last year, has redirected the Maldives’ foreign policy orientation towards China, a shift from its historical reliance on India. His administration has embarked on ambitious infrastructure projects, funded largely by Chinese investments, following a landslide victory in parliamentary elections in April.
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Fitch’s assessment assumes the Maldives will continue to depend on bilateral and multilateral financial aid. The agency suggested that the nation could capitalize on its geopolitical significance and potential policy measures by the new government to secure additional funding. The Maldives, comprising 1,192 coral islets spread over 800 kilometers, strategically positions itself along major east-west international shipping lanes. Its foreign debt stood at $4.038 billion in the previous year, equivalent to 118 percent of its gross domestic product, with China’s Export-Import Bank holding a substantial 25.2 percent share. Muizzu’s administration has welcomed increased financial support from China, acknowledging the country’s assistance during his state visit to Beijing shortly after assuming office.
The nation troubled by debt received fiscal support aid from New Delhi as well. The Greater Malé Connectivity Project, a bridge being built to connect the capital of the Maldives, Malé, with neighboring islands, is one of the massive infrastructure projects that the nation has been pushing in recent years and is being funded by international loans. India has provided the Greater Malé Connectivity Project with a grant of $100 million and credit lines of $400 million. Overall, the Maldives’ financial future hinges on its ability to manage debt levels amidst ongoing economic challenges exacerbated by external borrowing and shifting geopolitical dynamics.
