Maldives may be heading for debt default akin to Sri Lanka

Maldives could be heading towards a debt default akin to its neighbour Sri Lanka despite austerity measures and planned spending.

The island nation’s foreign exchange reserves are running thin and debt servicing payments are due in 2025 and 2026. Of the current debt, $3.4 billion is external debt, primarily owed to China and India. The immediate concern is servicing external debt worth $600 million in 2025 and $1 billion in 2026, according to people familiar with Maldives' economy.

The Muizzu government has taken some measures including additional taxes on tourists, salary cuts and planned sale of stakes in state-owned enterprises to tide over the crisis. It has also reached out to friendly countries for emergency budgetary support, sending its ministers to the Gulf but these countries have so far not agreed to Male’s requests, according to Maldives watchers.


It has been learnt that Maldives’ requests for $200 million budget support from the China Development Bank, refinancing debt service payments and a currency swap from China have not yet been entertained.

Male even made requests for budgetary support to Bangladesh and Sri Lanka, and the Sharjah Islamic Bank has expressed reservations for facilitating a $200 million Sukuk Bond issue that Maldives had planned, according to one of the persons quoted above. Finding resources to meet the $1 billion Sukuk repayment in 2026 would still be difficult.

Higher tourist arrivals and the $750 million currency swap from India could ease pressures in the short term but it would be inadequate to tide over the upcoming debt service payments.

Maldives debt vulnerabilities have arisen from structural deficiencies including a small production base, low levels of diversification, high imports and external shocks such as the pandemic and high oil prices.

Maldives was able to function with loans and grants over the years despite growing budget deficits but debt increased from $3 billion in 2018 to $8.2 billion in March 2024. This could increase to more than $11 billion by 2029.

The forex reserves held by the Maldives Monetary Authority that can be used stood below $65 million as of end-December 2024. Fitch and Moody’s had earlier lowered Maldives’ ratings.

The Maldives government has imposed new taxes on the tourism sector with revision of the tourist GST rate from 16% to 17%, a hike in green tax collected from tourists and a departure tax and airport development fee from passengers flying abroad from Maldives. The Maldives government has also decided to divest its stakes in Maldives Integrated Tourism Development Corporation and Agronet Corporation, and approved mergers of several companies including Maldives Airports Company Ltd and Regional Airports Company Ltd.

The Muizzu government’s austerity measures also include terminating 228 political appointees and phasing out indirect subsidies for food, electricity and fuel in favour of targeted assistance to low-income households.

Despite all the measures, Maldives would still face a financing gap of more than $500 million in 2025 and $800 million in 2026. Male plans to use $441 million from its Sovereign Development Fund (SDF) to partially cover these payments.