As the Maldives faces increasing debt challenges, international financial institutions are warning that the island nation’s economic stability is at risk due to declining foreign currency reserves and increasing debt repayments. The island nation's financial difficulties have been exacerbated by foreign debt, with China's lending practices and trade policies playing a significant role in the economic downturn.

The Maldives' total debt has risen from USD three billion in 2018 to USD 8.2 billion by March 2024, and is projected to exceed USD 11 billion by 2029. Of this, USD 3.4 billion is debt owed to China and India. With debt repayment deadlines approaching, the Maldives is required to repay USD 600 million in foreign debt in 2025, followed by a substantial USD one billion debt payment in 2026.

Fitch has downgraded the island nation’s rating three times between June and August 2024, while Moody's maintains a negative outlook on the government's long-term financial situation as well.

The China-Maldives Free Trade Agreement (FTA), implemented in January 2025, has worsened the economic situation rather than providing relief. While bilateral trade amounts to approximately USD 700 million, the disparity is significant. China accounts for 97 percent of the trade, while Maldivian exports make up less than three percent.

Under the FTA, the Maldives has eliminated tariffs on 91 percent of Chinese imports, greatly benefiting China but providing little economic advantage to the Maldives. Chinese imports reached USD 65 million in the first two months of 2025, compared to USD 43 million during the same period in 2024.

The FTA also allows Chinese companies to exert influence in the Maldivian tourism sector, resulting in a situation where a large portion of the financial benefits from Chinese tourists returns to China.

Despite the Maldives' attempts to secure financial assistance from various institutions, these efforts have been unsuccessful so far. The government's request for USD 300 million from each Gulf Cooperation Council (GCC) country has not received a positive response.

In addition to this, President Dr. Mohamed Muizzu's request to China for USD 200 million in budget support, debt refinancing, and currency swap has not yielded a promising response. However, India's USD 750 million currency swap has provided temporary relief, allowing the Maldives to maintain import expenses and government expenditures for the time being.

Financial institutions and experts warn that without debt restructuring, the Maldives risks following in the footsteps of neighboring Sri Lanka, which faced sovereign default in 2022. Without prompt economic reform and financial assistance, the Maldives could soon declare bankruptcy, leading to significant economic and social consequences.