China Debt Trap? India’s Neighbour Maldives Left with Just $18 Million in Reserves

International News: The Maldives, one of India’s closest neighbours, is facing a severe financial crisis. The island nation has only 18.8 million dollars left in its usable foreign currency reserves not enough to pay for even one month of imports. In this difficult time, India has stepped in to help by extending the repayment period for a 50-million-dollar loan by one year and waiving interest for that period.

Maldives on the Verge of Bankruptcy

The country standing on the brink of bankruptcy is the Maldives. The Maldives’ foreign debt is rising rapidly, with China and India being the main lenders. In 2025 it has to repay 600 million dollars of external debt, and in 2026, 1 billion dollars. The Maldivian economy is heavily dependent on tourism, which has been severely affected by the Covid-19 pandemic and the drop in the number of Indian tourists.

What the Maldivian Central Bank Said

According to figures from the Maldives Monetary Authority (MMA), at the end of August, there was a fall of 25 million US dollars in usable foreign currency reserves. In July, usable reserves were 213 million US dollars, but now this figure has dropped to 188 million US dollars. Usable reserves are calculated by deducting short-term loans from total reserves and including the dollars invested in domestic banks.

Maldives Sinks Due to Close Ties with China 

Maldivian President Mohamed Muizzu is considered close to China. In the first year of his presidency, there was a lot of bitterness in India-Maldives relations. As soon as he became president, Muizzu not only removed Indian soldiers from the Maldives but also stopped the operation of helicopters, Dornier aircraft, and a patrol vessel that had been gifted by India. However, in the past few months, Muizzu has had a change of heart and has begun to value Maldives’ relations with India.