The Maldives 'debt distress': President Muizzu faces domestic outrage over China affinity

Maldives upgraded its relationship with China by signing a number of MoUs with the Asian giant during Muizzu's maiden visit to Beijing as the Maldivian President in January this year, where Chinese President Xi Jinping called him "an old friend" of his country.

Now, ahead of the parliamentary polls in the archipelagic state, when the opposition parties have demanded a probe against him and his impeachment over corruption charges in the past, he is also facing the anger over China deals.

Muizzu reportedly signed at least 20 deals with China during his state visit to Beijing.

However, the shift of the island nation's allegiances from India to China is not giving a very positive result as the country had planned.

In February, the International Monetary Fund (IMF) warned that the strategically placed Indian Ocean nation of Maldives is at high risk of "debt distress" as the Muizzu government is shifting its allegiances from India to China, and borrowing heavily from Beijing.

The total debt of the island nation stood at MVR119 billion (USD 7.6 billion), out of which external debt is MVR 50.9 billion (USD 3.3 billion), while the total public debt, including borrowings and sovereign guarantees, stood at 110.9 percent of the country's GDP at the end of September last year.

Maldives' foreign debt as a percentage of GDP stands at 47.5 percent.

The country currently owes MVR 9.1 billion (USD 600 million) to China. The bulk of the debt is in the form of sovereign guarantees for loans taken through various government companies.

Maldives has a loan of MVR 30.1 million to Export Import Bank of China, MVR 4.55 billion sovereign guarantees to Industrial and Commercial Bank of China, MVR 2.32 billion sovereign guarantees to Export Import Bank of China guarantee and MVR 2.26 billion sovereign guarantees to China Development Bank.

As per the government, 30 percent of the external debt is owed to China which is around USD 1 billion out of USD 3.3 billion external debt.

The Maldivian President requested Chinese support for reducing the debt repayment burden for the next 3-5 years to gain breathing space to restructure the external debt portfolio.

Muizzu also sought Chinese assistance in establishing a Development Bank in Maldives to provide finance for housing at an affordable rate.

The total public and publicly guaranteed debt (PPG) was USD 7 billion (113.5 percent of GDP) by the end of 2022.

Domestic debt accounted for 62.1 percent of GDP, while the external debt was at 51.4 percent of GDP.

According to reports, the country's current debt burden remains extremely high. Of which about 30 percent is for China.

Underlying Maldives grim economic situation and China’s massive intrusion in the country's affair, Maldives has urged China to consider providing USD 200 million grant-aid as a budgetary support and USD 350 million medium to long term loan at concessional rates, for narrowing the financing gap and implementing crucial development projects.

The island nation requires US$ 550 million through external financing to meet its budgetary requirements of US$1.1 billion for 2024.

President Mohamed Muizzu on his return to Male claimed that his visit to China was fruitful and stated that China has agreed to provide USD 130 million as Grant Aid.

A view of the Male harbour. Image: Wikipedia Creative Commons

He also mentioned that Beijing has agreed to consider re-structuring the re-repayment of loans and an expert team from China would visit Maldives to discuss ways to offer a grace period in loan repayment over next five years.

However, except for USD 10 million which was promised during the Maldivian President’s visit to Beijing, Maldives has not received any money from China.

The pro-China Maldivian President faced massive domestic criticism for his anti-India stance as the main opposition parties of the country, the Maldivian Democratic Party (MDP) and the Democrats, slammed Muizzu for distancing from India, the island nation's "most long-standing ally."

Besides expressing concern over the new foreign policy of Muizzu-led government in Maldives, the opposition parties took to the street in January.

However, the pro-China Maldives President has recently struck a reconciliatory tone and said India will continue to remain his country's closest ally as he had to urge New Delhi to provide debt relief to the archipelago nation.

According to a Business Standard report, the Maldives owed approximately USD 400.9 million to India by the end of last year.