The Maldives is grappling with a severe debt crisis, with China’s lending practices and trade policies being cited as major contributors to the island nation’s economic turmoil. The crisis has raised concerns about the Maldives’ financial sovereignty, as foreign exchange reserves dwindle and substantial debt repayments loom.
Mounting Debt and Economic Strain
The Maldives’ total debt stock has surged from $3 billion in 2018 to $8.2 billion as of March 2024, with projections indicating it could exceed $11 billion by 2029. Of the current debt, $3.4 billion is external, with China and India being the primary creditors. The Maldives faces immediate financial challenges, including external debt repayments of $600 million in 2025 and $1 billion in 2026. Foreign exchange reserves, which stood at $65 million in December 2024, remain critically low, underscoring the severity of the balance of payments crisis.
China-Maldives Free Trade Agreement (FTA)
The China-Maldives Free Trade Agreement, implemented in January 2025, has further deepened the economic crisis. Under the FTA, the Maldives eliminated tariffs on 91% of Chinese imports, a move that has disproportionately benefited China. While bilateral trade reached approximately $700 million, Maldivian exports accounted for less than 3% of the total, highlighting the trade imbalance. The agreement has also opened the Maldivian tourism sector to Chinese companies, diverting financial benefits away from the local economy.
Government Measures and International Aid
In response to the crisis, the Maldivian government has implemented aggressive cost-cutting measures, including increasing taxes, divesting stakes in state-owned enterprises, and phasing out subsidies for food, electricity, and fuel. Despite these efforts, the country faces a financing gap of over $500 million. While India has provided temporary relief through a $750 million currency swap, appeals for aid from other international sources have largely gone unanswered.
Outlook and Concerns
The Maldives’ financial situation has drawn comparisons to Sri Lanka’s recent economic collapse, with experts warning that the island nation risks following a similar path toward sovereign default. Without significant international intervention or debt restructuring, the Maldives’ economic stability and sovereignty remain at risk.
This crisis serves as a cautionary tale about the long-term implications of unsustainable borrowing and trade agreements, emphasizing the need for balanced economic policies and diversified partnerships.
