Days after the IMF warned the Maldives of a “high risk of external and overall debt distress,” China, the largest creditor, has said that discussions are being held with Male on providing some relief in debt repayment on the loans taken from China by the government here.

Chinese Ambassador to the Maldives Wang Lixin, however, maintained that debt restructuring is not the solution, as doing so would obstruct the Maldives from seeking further financial aid from Beijing, according to a report in news portal Edition.mv on Friday.

Ambassador Wang also revealed that a technical team from both China and the Maldives was taking charge of the issue, Sun.mv portal added.

A report from the International Monetary Fund (IMF) on May 13 said that Maldives’ external public and publicly guaranteed (PPG) debt – which is predominantly owed to bilateral and commercial creditors – stood at USD 3,072 million (or around 49 per cent of GDP) in 2022, up from USD 3,046 million in 2021 in nominal terms.

China is the largest creditor to the Maldives with about 19 per cent of the total (external) PPG debt.

Under the heading ‘China’s Structural Slowdown and the Maldivian Economy’, the IMF report said the Maldives’ real GDP growth is strongly correlated with China’s demand for service imports, indicating that the Chinese market will remain a key driver of the Maldives’ growth.

“China’s trend slowdown could, nevertheless, pose downside risks to the Maldives’ medium-term growth,” it said, adding, according to the October 2023 IMF’s World Economic Outlook (WEO), the growth of China’s real service imports is expected to sharply slow from 13.5 per cent in 2024 to around 4.6 per cent annually until 2028.

The IMF also warned that the overall fiscal deficit is estimated to reach 13.4 per cent of GDP in 2023, with public debt to rise further to 118.7 per cent of GDP in 2023. “Without significant policy changes, the Maldives remains at high risk of external and overall debt distress,” it said.

Wang on Thursday was speaking with Maldives media when she said that her country does not wish for Maldives' debt to increase further and hence, China will prioritise the provision of grants and free aid to the Maldives.

“Discussions are being held between the countries on providing some form of ease in debt repayment on the loans currently taken from China by the Maldives government,” she said.

Interestingly, the Chinese ambassador's remarks came days after India extended, as a goodwill gesture, budgetary support to the Maldives with a rollover of USD 50 million Treasury Bill for another year after a special request from the Maldivian government.

Wang, however, maintained that debt restructuring is not the solution, as doing so would obstruct the Maldives from seeking further financial aid from China, the news portal said.

“We are prioritising providing free aid to the Maldives, so as not to further increase Maldives' debt,” the envoy said, adding and listing the number of projects planned in the Maldives under grants and free aid from China.

Wang also dismissed the claims that China is placing the Maldives in a 'debt trap' and asserted that China has always respected the Maldives and that the projects run in the country are not conducted with "any motives of gain or benefit" to China, the news portal quoted her as saying.

The 'debt trap' rhetoric is an agenda commonly used against China, she said, stating that she had confidence that the Maldivians would not believe such narratives.

The Government of Maldives earlier this week signed loan agreements with the Saudi Fund for Development (SFD) of USD 100 million to propel the advancement of Velana International Airport (VIA) and USD 50 million to strengthen the healthcare sector.

According to World Bank statistics – Maldives' debt to China stood at USD 1.37 billion – accounting for 20 per cent of Maldives’ foreign debt. Most of these loans were drawn during former president Abdulla Yameen Abdul Gayyoom’s administration, Sun.mv reported.

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