Island in Turmoil: Maldives Faces Economic Abyss as China Tightens Grip

Chinese President Xi Jinping and Maldivian President Mohamed Muizzu attend a welcome ceremony at the Great Hall of the People in Beijing, China, on January 10, 2024 

The Maldives, under the leadership of President Mohammad Muizzu, faces an impending economic crisis exacerbated by its increasing ties with China, prompting concerns from global powers such as the United States and India.

Muizzu’s administration, marked by anti-India rhetoric and a shift towards Beijing, has grappled with a series of challenges ranging from economic turmoil to political unrest. Despite assurances from the President that no new development projects would be initiated due to economic strains, the country continues to face escalating debt and declining global reputation, notably highlighted by recent violent clashes within the Parliament.

In an exclusive interview, a prominent US diplomat in South Asia disclosed Washington’s efforts to encourage Maldives to accept joint investments from India and the US, aiming to mitigate the country’s reliance on Chinese financing. The move comes amidst growing concerns over the economic vulnerabilities stemming from extensive Chinese debt experienced by other South Asian nations.

According to reports, Maldives received substantial financial support from the International Monetary Fund (IMF) in recent years, with warnings issued regarding the nation’s escalating debt levels, particularly in relation to its deepening engagement with China. Despite these warnings, President Muizzu’s administration has continued to prioritize ties with Beijing, as evidenced by recent agreements signed during Muizzu’s visit to China earlier this year.

The Maldives’ economy is heavily burdened by external debt, a significant portion of which is owed to China. Recent studies indicate that Chinese financial institutions own a substantial portion of Maldives’ sovereign debts, echoing a trend observed during the tenure of former President Abdulla Yameen. Yameen’s heavy borrowing from China for development projects left the Maldives vulnerable to economic distress, a situation mirrored in the current administration’s policies.

The Maldives’ overreliance on Chinese financing has raised concerns among international organizations, with warnings issued regarding the country’s economic stability and debt sustainability. With Maldives’ total debt exceeding 115% of its GDP, experts caution against the risks associated with Chinese loans and urge political leaders to reconsider their allegiance to Beijing.

In light of these developments, calls for assistance from like-minded partners such as India and the US have intensified, with proposals for collaborative efforts to support Maldives’ economic resilience. However, the trajectory of the Maldivian government’s policies remains uncertain, raising questions about the country’s ability to navigate the looming economic crisis. As Maldives teeters on the brink of economic turmoil, the need for diversified economic partnerships and strategic cooperation becomes increasingly evident. The support from allies like India and the US could prove instrumental in safeguarding Maldives’ economic interests and fostering sustainable development, ultimately steering the country away from the pitfalls of Chinese debt diplomacy.

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