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Maldives remains at 'high risk' of external, overall debt distress: IMF

The IMF also said that without changing policies, Maldives remains at highly vulnerable to climate change risks with high levels of fiscal deficits and public debts. Muizzu's mentor and former President Abdullah Yameen also borrowed heavily from China that drove the country in a debt crisis.

Aveek Banerjee Edited By: Aveek Banerjee @AveekABanerjee Male Published on: February 08, 2024 16:22 IST
Maldives, debt crisis, IMF, Mohamed Muizzu
Image Source : AP (FILE) Maldives President Mohamed Muizzu, widely considered a pro-China leader.

Male: The International Monetary Fund (IMF) has said that the Maldives, currently led by President Mohamed Muizzu, remains at a high risk of external and overall debt distress amid rising fiscal deficits and public debt. This came after an IMF mission led by Piyaporn Sodsriwiboon visited Male from January 23-February 6 to discuss recent economic developments and the country's policy priorities.

"Following the pandemic-induced contraction, the Maldivian economy expanded by 13.9 per cent in 2022 and is estimated to grow by 4.4 per cent in 2023. As tourist arrivals are expected to rise further, growth is projected at 5.2 per cent in 2024," said the IMF in its report. It further said the country's current account deficit for this financial year will remain 'large' due to elevated fuel prices and strong import demands.

"Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated, and the Maldives remains at high risk of external and overall debt distress. Amid elevated fuel prices coupled with continued strong import demands, the current account deficit in 2024 is projected to remain large, albeit gradually narrowing over the medium term," it added.

Furthermore, the global moneylender also said the Maldives is highly vulnerable to climate change risks, with "potentially severe economic costs due to floods and rising sea level". A sustained fiscal consolidation, accompanied by tighter monetary and macro-prudential policies is needed to reduce vulnerabilities and restore the sustainability of public finance and debt, said the IMF.

The IMF suggested the Maldives strengthen institutions to support climate adaptation and mitigation efforts that can help enable access to additional climate financing and deliver on the climate pledges. Meanwhile, China has pledged more funding for the Maldives since pro-Beijing President Muizzu took power in November last year.

Footprints of the past

Muizzu's mentor and former President Abdullah Yameen's government borrowed much from China during their years, causing a crippling debt crisis. He refused to renew an agreement with India and, like Muizzu, demanded Indian security personnel to leave. More than 40 per cent of the Maldives' foreign debt was owed to China in 2021.

The Maldives under Yameen has grown closer to China, with Beijing funding roads, bridges and an extension to the international airport as part of its Belt and Road Initiative (BRI) of infrastructure projects in almost 70 countries from Mongolia to Montenegro.

Under Ibrahim Mohamed Solih, relations rapidly improved between the Maldives and its traditional ally India. However, this relationship is at risk due to Muizzu's anti-India stance, as he demanded the withdrawal of Indian military presence in the country and denied renewing a hydrographic project with New Delhi, while building closer ties with China.

Muizzu reiterates Indian troop withdrawal

Earlier on Monday, Maldives President Mohamed Muizzu addressed the parliament, in a session completely boycotted by the opposition. Muizzu "underscored the necessity for the Maldives to fortify its military capabilities across terrestrial, aerial, and maritime domains as part of a comprehensive defence strategy."

He also stated that diplomatic negotiations were underway for the withdrawal of Indian troops. He detailed that, as agreed in the last negotiations, the military personnel on one of the three aviation platforms would be withdrawn before March 10, 2024, and the military personnel on the remaining two platforms would be withdrawn before May 10, 2024.

Notably, the removal of Indian troops in the Maldives was the main campaign of Muizzu's party. Currently, there are around 80 Indian troops, along with Dornier 228 maritime patrol aircraft and two HAL Dhruv helicopters, stationed in the Maldives.

The Indian platforms have been providing humanitarian and medical evacuation services to the people of the Maldives for the last few years. Last week, both countries on Friday agreed on a "set of mutually workable solutions" to enable the continued operation of Indian aviation platforms in the island country. According to the Maldives foreign ministry, India has agreed to "replace" military personnel in three aviation platforms by May 10.

India also expressed concern towards the Maldives allowing a Chinese research vessel to dock on its shores, which New Delhi says can be used for "spying" and "research" purposes in the Maldives Special Economic Zone. The MEA on Thursday said India has been keeping a close eye on the movement of the ship. 

(with inputs from ANI)

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