Maldives’ Economic Downfall Under President Muizzu’s Choices.

As the Maldives approaches a critical juncture in its economic trajectory, the decisions made by President Mohamed Muizzu are coming under intense scrutiny. The nation, composed of around 550,000 people  stands at a crossroads, grappling with economic challenges exacerbated by a series of decisions that have raised eyebrows and sparked concerns. The recent reports indicating that the Maldivian government under President Muizzu is living beyond its means send a clear signal that the economic health of the country is in jeopardy. The recurring expenditure is on the rise, and capital expenditure is being funded through external debt, notably from India and China, or by resorting to deficit-financing closer to home. This financial tightrope walk raises questions about the sustainability of such practices and the potential long-term consequences for the nation.

President Muizzu’s tenure is marred by a stark display of poor economic management, as the nation grapples with an array of economic challenges. The touted economic expansion in Q1 2023 and the increase in tourist arrivals, while seemingly positive, are overshadowed by a 3.5 percent inflation rate in H1 2023 and a doubling of the current account deficit.[1] The government’s decision to bolster spending amid proposed reforms raises questions about its fiscal prudence, suggesting a lack of strategic economic management. The Monetary Authority of Maldives’ heightened exposure to government bonds further highlights the risks associated with the administration’s economic policies. These structural challenges, coupled with the evident vulnerabilities, underscore the need for a comprehensive economic strategy, casting a critical light on President Muizzu’s ability to navigate and address the economic complexities facing the Maldives.

In the realm of international partnerships, the choice between India and China as development partners becomes a focal point. India’s track record as a development partner to Third World countries is laudable, emphasizing not only capital infusion but also a mindful approach that safeguards local employment. In contrast, concerns arise when dealing with China, which tends to import not only capital but also labor, potentially depriving the local population of job opportunities and family incomes.

The Maldives faces potential economic peril as its substantial debt to China, standing at $1.37 billion, comprises around 20% of its public debt, according to a World Bank report.[2] Despite warnings and concerns about the debt burden, Male remains closely tied to China, its largest bilateral creditor, surpassing debts owed to Saudi Arabia and India. Former President Mohamed Nasheed previously labeled China’s lending as a “debt trap.” The World Bank report indicates that Male’s interest payments surged to $162.3 million from January to August 2023, a 15% increase from the previous year, raising apprehensions about the sustainability of such financial commitments. The report highlights a worrisome “build-up of sovereign exposure” and a “lack of domestic investment opportunities” during the pandemic, signaling potential economic challenges for the Maldives.[3]

President Muizzu’s administration is now compelled to consider restructuring current debts with China, highlighting the urgent need for external funding to support new development projects. In navigating this complex terrain, the past records of India and China as development partners come into sharp focus. The potential consequences of aligning with China, which might inadvertently lead to the importation of foreign labor, must be carefully weighed against India’s proven track record, which has traditionally prioritized local employment.

President Muizzu’s recent shift towards Western countries like the US and Europe , diverging from the historically strong ties with India, particularly in healthcare and livelihood needs, raises economic concerns. India has been a reliable partner, providing cost-effective healthcare solutions and developmental aid. The recalibration towards Western nations could disrupt established networks, leading to increased costs for medical services and potential losses in developmental assistance. The unique geographical challenges of the Maldives make India’s regional proximity and longstanding partnership a more economically viable choice. President Muizzu’s decision requires a careful evaluation of the economic repercussions, emphasizing the need for a balanced approach that considers both strategic partnerships and economic sustainability for the Maldives.

In the intricate dance of international relations, the Maldives’ leadership has taken a somewhat perplexing stance, particularly concerning the presence of ‘foreign soldiers’ on Maldivian soil. The call for the removal of these soldiers appears to be directed primarily at India, the country that has historically played a crucial role in aiding the Maldives. President Muizzu’s diplomatic maneuvers, coupled with his demand for the withdrawal of Indian forces, create a cloud of uncertainty around the future trajectory of bilateral relations.[4]

Despite the political posturing, India remains a vital partner for the Maldives, not only for security cooperation but also for financial assistance. Prime Minister Narendra Modi’s early congratulations to President Muizzu and subsequent discussions on enhancing bilateral relations underscore India’s commitment. However, the President’s insistence on addressing the ‘foreign soldier’ issue raises questions about the complexities involved in this delicate diplomatic relation.

As the economic landscape unfolds, President Muizzu’s recent overtures to China for debt restructuring take center stage. China, being the largest external creditor to the Maldives, holds significant leverage. The President’s direct appeal to Chinese President Xi Jinping for restructuring reflects the urgency of the economic situation. The proposed grace period in loan repayments over the next five years, facilitated by a technical team from China’s Finance Ministry, signals a desperate attempt to ease the burden of debt repayment.[5]

This move, while providing temporary relief, places the Maldives in a precarious position with a risk of external debt distress classified as ‘high’ by the IMF. The nation’s total public debt, around USD 1.3 billion owed to China, raises concerns, especially considering the country’s GDP of approximately USD 4.9 billion.

The global context further heightens the anxieties surrounding the Maldives’ economic decisions. The experiences of Sri Lanka and Pakistan, both grappling with economic crises after extensive Chinese investments, serve as cautionary tales. The Maldives must navigate this economic minefield, considering the risks of debt distress and the broader implications for its sovereignty.

President Muizzu’s economic policies are at a crossroads, with critical decisions impacting the nation’s financial health and diplomatic relations. The delicate balance between India and China, coupled with the high-stakes game of debt restructuring, places the Maldives on uncertain terrain. The future trajectory will hinge on navigating these challenges with foresight and prudence, ensuring that short-term gains do not compromise the long-term stability and sovereignty of the nation.