The International Monetary Fund (IMF) issued a warning on Wednesday, highlighting the Maldives’ vulnerability to “debt distress.” This strategically positioned nation in the Indian Ocean has significantly borrowed from China and altered its allegiance to India.

Since President Mohamed Muizzu, who is pro-China, assumed power in November, Beijing has committed to providing additional funding for the Maldives.

Last month, President Muizzu expressed gratitude towards China for its “selfless assistance” in providing development funds following his visit to Beijing.

While the International Monetary Fund refrained from providing specifics regarding the Maldives’ foreign debt, it emphasized the necessity for “urgent policy adjustment.”

The IMF, after a review of the country’s economy said-

“Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated,”

“The Maldives remains at high risk of external and overall debt distress”.

Renowned for its pristine white sand beaches, the Maldives relies heavily on tourism, which constitutes nearly a third of its economy. Despite the challenges posed by the Covid-19 pandemic, the archipelago has demonstrated economic recovery.

Despite projections of growth stemming from planned airport expansion and increased hotel developments, the IMF cautioned that the Maldives faces significant uncertainty, with risks leaning towards the downside.

Former President Abdulla Yameen, who governed for five years until 2018, heavily borrowed from Beijing for infrastructure projects. As a result, as of 2021, over 42% of the Maldives’ foreign debt, which exceeds $3 billion, is owed to China, as reported by the World Bank citing the Maldives’ finance ministry.

President Muizzu, mentored by Yameen, has made moves to bolster the country’s military capabilities, amid tensions in the region. He has requested the departure of Indian troops operating three reconnaissance aircraft by May 10, emphasizing the need to fortify defense measures to safeguard the Maldives’ extensive maritime territory.

The Maldives’ strategic location along global east-west shipping lanes, spanning approximately 800 kilometers (500 miles) across the equator and comprising a chain of 1,192 tiny coral islands, underscores its geopolitical significance.