The IMF urged the Maldives to urgently raise revenue, cut spending and reduce external borrowing to avoid a major economic crisis. File
| Photo Credit: AP

The International Monetary Fund warned the Maldives against looming “debt distress” on Monday, as the small but strategically placed luxury tourist destination looks set to borrow more from main creditor China.

Since winning office last year, President Mohamed Muizzu has reoriented the atoll nation — known for its upmarket beach resorts and celebrity vacationers — away from traditional benefactor India and towards Beijing.

Last month his party won parliamentary elections in a landslide after promising to build thousands of apartments, reclaim more land for urban development and upgrade airports, all with Chinese funding.

Without naming the archipelago’s main lender, the IMF said the Maldives remained “at high risk of external and overall debt distress” without “significant policy changes”.

“Uncertainty surrounding the outlook is high and risks are tilted to the downside, including from delayed fiscal consolidation and weaker growth in key sources markets for tourism,” the IMF said in a statement.

It urged the Maldives to urgently raise revenue, cut spending and reduce external borrowing to avoid a major economic crisis.

The Maldives is a small nation of 1,192 tiny coral islets scattered 800 km across the equator, but it strategically straddles key east-west international shipping routes.

Tourism is a crucial source of foreign exchange for the country, home to white sandy beaches and secluded resorts offering Robinson Crusoe-style holidays.

China has pledged more funding since last year’s victory by Mr. Muizzu, who thanked the country for its “selfless assistance” for development funds on a state visit to Beijing shortly after he took power.

Official data showed the Maldives’ foreign debt reaching $4.038 billion last year, about 118% of gross domestic product and up nearly $250 million from 2022.

As of June 2023, the Export-Import Bank of China owned 25.2 percent of the Maldives’ external debt and was the country’s biggest single lender, Maldives finance ministry figures showed.

Debt-burdened neighbour Sri Lanka defaulted on its foreign debt in 2022 after a foreign exchange crisis that brought months of food and fuel shortages.

More than 50% of Sri Lanka’s bilateral debt is owed to China and the island nation is still struggling to restructure its borrowings with IMF assistance.

Unable to service a huge Chinese loan to build a port in the south, Sri Lanka allowed a Chinese state company to take over the facility on a 99-year lease in 2017.

The deal raised fears about Beijing’s use of “debt traps” in exerting its influence abroad, including in the Indian Ocean.

Maldives’ main opposition candidate Mohamed Muizzu casts his vote in Male, Maldives, on September 30, 2023.
| Photo Credit: AP

Frontrunner and Opposition candidate Mohamed Muizzu appeared poised for victory in the Maldivian presidential race, provisional results of Saturday’s run-off showed, as he beat the India-friendly incumbent Ibrahim Mohamed Solih in a closely fought contest in the Indian Ocean archipelago.

Also read: The Hindu Profiles: Who is Mohamed Muizzu? 

The second round of the presidential election saw a higher voter turnout of 86%, compared to the 79.85% recorded in the first, the lowest seen in a Maldivian presidential election.  Around 9 p.m. IST, the Election Commission of Maldives showed Mr. Muizzu having garnered about 56% of the vote, while Mr. Solih had secured nearly 46%.  

The vote for change in the Maldives comes after a strong anti-incumbency sentiment against the Solih administration, and a concerted Opposition campaign, led by his rival, former President and jailed leader Abdulla Yameen, demanding ‘India out’ of the country.

President Solih came under sharp attack from the Opposition for his close India ties. While the Opposition People’s National Congress-Progressive Party of Maldives coalition’s pro-China stance is no secret, observers within the Maldives have said Mr. Muizzu is unlikely to abruptly sever ties with India.  The newly-elected leader would seek to balance India-China ties, they note, even as New Delhi hopes for continuity in India’s many infrastructure projects across the island nation.

Both candidates had made big promises on housing, a preoccupation for the Maldivian voter, as the island nation battles congestion and development skewed towards capital Male, while several other atolls await basic amenities. The winner of Saturday’s election, which followed an inconclusive first round on September 9, 2023, will have his task cut out, as the country faces mounting debt, dwindling foreign reserves and heightening climate risks.

The Maldives is also preparing for a referendum next month, for citizens to decide if the country must switch to a parliamentary system of governance, a long-time demand of former President and parliamentary Speaker Mohamed Nasheed. After his fallout with his party colleague and friend Mr. Solih —it is seen as a major reason for Mr. Solih’s electoral defeat —Mr. Nasheed backed a young aspirant who came third in the first round, and exited the race.

Voters seen at a polling station in Maldivian capital Male Saturday morning, on the day of the Presidential elections of the Indian Ocean Archipelago.
| Photo Credit: Meera Srinivasan

 Maldivian voters, known for their high, near-90% turnout in past elections, began lining up at polling stations in capital Male early on Saturday, to choose their President in a crucial contest.

Several schools, set up as polling stations, were buzzing with early voters. While eight candidates, including three independents, are running for the country’s top office, for voters it was a choice between continuity and change.

“I wouldn’t necessarily say I want change, but I certainly want improvement in planning policy and implementing it,” said a 33-year-old voter who asked not to be named. “I am here to basically exercise my democratic right,” she told The Hindu, outside a polling station.

Incumbent Ibrahim Mohamed Solih, elected in 2018 from the ruling Maldivian Democratic Party (MDP), is seeking a second term after his party split with Parliamentary Speaker and former President Mohamed Nasheed deciding to break away. His supporters formed The Democrats and have fielded a separate candidate. Male Mayor Mohamed Muizzu, backed by the People’s National Congress in the main oppositional camp, has emerged an important contender, according to local political observers.

Most candidates, including President Solih, have promised good governance, economic development and opportunities for youth in their manifestos. Some voters said the televised debate helped them make up their mind. “I did not want to go just by the poll manifesto, so I took a decision based on the debate. I think we need a leader who has a clear vision and the ability to express it to the public,” said a first-time voter, also requesting anonymity.  

As many as 574 ballot boxes have been placed across the capital, and in over 300 atolls, in addition to tourist resorts and overseas election centres, the island nation’s Election Commission said, highlighting the logistics behind the elections. The Indian Ocean archipelago has a 99.4 % literacy rate, and of its 5.2 lakh-population, more than half are eligible to vote. If no candidate secures over 50 % of the vote, a run-off election will have to be held within 21 days, authorities said.