Despite strong post-pandemic growth, the Maldives remains at high risk of debt distress, the International Monetary Fund (IMF) has warned.

“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,” the Fund said, calling for “urgent policy adjustment”. The assessment echoed the World Bank’s earlier assessment of the fiscal strain facing the Indian Ocean archipelago.

Acknowledging the challenge, President Mohamed Muizzu recently told Parliament that his government would adopt reform policy to improve the state’s finances and bring debt and fiscal conditions to sustainable standards. 

IMF staff issued the statement on Tuesday, as part of their “preliminary findings” from their mission to the Maldives. As tourist arrivals are expected to rise further, the island nation’s economy is projected to grow 5.2 per cent in 2024, the Fund said. Further, the expansion of the Velana airport terminal and likely increase in hotel accommodation capacities, are projected to boost growth potential, it said.

During his state visit to China in January this year, President Mohamed Muizzu sought Beijing’s assistance in the second phase of the airport’s expansion. On the other hand, China has agreed to discuss a possible deferment of the debt the Maldives owes the Asian giant, Muizzu announced on his return. China is the Maldives’s largest bilateral creditor, and the island owes about $1.4 billion to Beijing. The World Bank has estimated the Maldives’s debt to GDP ratio will remain over 115 per cent this year.

Meera Srinivasan is The Hindu’s correspondent in Colombo