Maldives faces debt crisis risk despite austerity measures: Report

While higher tourist arrivals and a $750 million currency swap from India may provide short-term relief, these measures are unlikely to fully offset the upcoming debt obligations.

Maldives is facing mounting debt concerns that could lead to a default similar to Sri Lanka's, despite implementing austerity measures and planned spending adjustments. The island nation's foreign exchange reserves are depleting rapidly, with major debt servicing payments looming in 2025 and 2026.

According to a report by Economic Times, Maldives' external debt stands at $3.4 billion, largely owed to China and India. The immediate concern lies in servicing $600 million in external debt due in 2025 and $1 billion in 2026.

The Muizzu government has introduced measures such as increased taxes on tourists, salary reductions, and plans to sell stakes in state-owned enterprises to address the crisis. Additionally, Maldives has sought emergency support from friendly nations, including sending ministers to Gulf countries. However, these countries have yet to respond positively to Male's requests, according to the Economic Times report.

Maldives had also requested $200 million in budget support from the China Development Bank, refinancing assistance for debt service payments, and a currency swap with China. However, these appeals remain unanswered. Further efforts to secure budgetary support from Bangladesh and Sri Lanka have not yielded positive outcomes, while the Sharjah Islamic Bank has expressed concerns about facilitating a $200 million Sukuk Bond issue planned by Maldives. Finding resources to meet the $1 billion Sukuk repayment in 2026 remains a challenge.

While higher tourist arrivals and a $750 million currency swap from India may provide short-term relief, these measures are unlikely to fully offset the upcoming debt obligations.

Maldives' debt vulnerabilities are attributed to structural deficiencies, including a limited production base, low economic diversification, heavy reliance on imports, and external shocks like the COVID-19 pandemic and rising oil prices, the Economic Times reported.

Despite securing loans and grants to sustain itself over the years, Maldives' debt has surged from $3 billion in 2018 to $8.2 billion as of March 2024. Projections suggest this figure could exceed $11 billion by 2029.