The Maldives is the latest of India’s neighbors to grapple with mounting international debts, much of it owed to China.
Chinese firms have constructed key facilities—such as bridges, ports and airports—across South Asia. Neighboring countries—including Pakistan, Sri Lanka and Bangladesh—have also faced difficulties repaying their Chinese loans on large-scale infrastructure projects, such as a bridge linking the Maldives’ capital of Male to its international airport.
This phenomenon has led to accusations of “debt-trap diplomacy,” a term that became widely used during Donald Trump‘s administration. According to this notion, China lends money to vulnerable countries, knowing they may struggle to repay, which ultimately gives Beijing control over strategic assets. However, China has consistently denied such claims.
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In Sri Lanka’s case, the country defaulted on its external debt and effectively went bankrupt in 2022, exacerbated by high debt, the effects of COVID-19 and rising inflation. This year, Sri Lanka struck a deal with China’s Export-Import Bank to restructure $4.2 billion of its debt. Notably, more than half of Sri Lanka’s bilateral debt is owed to China.
China remains the largest creditor to the Maldives, holding $1.37 billion of the island nation’s debt, according to World Bank statistics. The Maldives’ public debt in 2023 reached 122.9 percent of its GDP, totaling about $8 billion. Saudi Arabia and India, while distant second and third creditors, are far behind China in terms of financial influence over the country.
The Maldives has even appealed to Bangladesh, securing a $200 million loan from the regional neighbor to support its economy.
Newly elected Maldivian President Mohamed Muizzu, who took office in November, has faced mounting criticism over his economic policies. Political opponents argue that his administration has failed to steer the country toward economic recovery. Muizzu’s trip to Beijing earlier this year marked a shift toward China, as he sought to renegotiate the terms of existing loans.
The strategic location of the Maldives in the Indian Ocean, a key passage for 80 percent of global trade, makes it a pivotal player in regional geopolitics. Muizzu has expressed hope for further collaborations with China under the Belt and Road Initiative, potentially increasing Chinese involvement in the island nation’s infrastructure.
However, the Maldives’ economic situation remains precarious. In June, Fitch Ratings downgraded the country’s foreign-currency issuer default rating to CCC+, citing rising external debt and challenges in maintaining its currency peg to the U.S. dollar.
The International Monetary Fund has also issued warnings, calling for urgent policy adjustments to address the country’s fiscal deficits and high debt burden.
Mohamed Maleeh Jamal, a former Maldivian minister and central bank board member, criticized the Muizzu administration for delaying necessary reforms. “The government must follow, without further delay and foot-dragging, the advice of the IMF and World Bank, which is to take immediate steps to minimize recurrent financial costs and manage external debt risk by implementing reforms,” Jamal told Newsweek.
He added that if China is not willing to commit to a debt restructuring plan, the Maldives should obtain one through the aid of other nations.
He also criticized Muizzu’s leadership, saying the president had “failed to maintain an intelligent foreign policy” and had not “shown the ability to stop recruiting unqualified activists to government posts and SOE [state-owned enterprises], many of whom lack proper qualifications and, more importantly, a mandate to carry out” key responsibilities.
Newsweek contacted the Maldives Foreign Ministry for comment via email. The Bangladeshi and Chinese foreign ministries did not immediately respond to written requests for comment.
Despite widespread concerns over China’s role in global lending, some experts dispute the notion of “debt-trap diplomacy.”
In a 2021 article for The Atlantic, Deborah Brautigam, a professor at Johns Hopkins University, and Harvard Business School’s Meg Rithmire argued that the theory oversimplified the complex nature of international finance. They said their research had found no evidence of China seizing assets from any debtor nation and added that Beijing often agreed to restructure loans, as seen in Sri Lanka’s case.
In Sri Lanka, for example, China offered extensions and a grace period. The situation suggests that China is evolving its approach to managing the financial risks involved in international infrastructure projects.
