The Maldives is grappling with a severe debt crisis that jeopardizes its economic sovereignty, as foreign exchange reserves dwindle and major debt payments loom. The nation’s total debt has skyrocketed from $3 billion in 2018 to $8.2 billion by March 2024, with projections indicating a further increase to over $11 billion by 2029. A significant portion of this debt, $3.4 billion, is external, primarily owed to China and India. In 2025, the country faces external debt service obligations of $600 million, rising to a staggering $1 billion in 2026. Economic indicators paint a grim picture, with usable foreign exchange reserves falling to dangerously low levels, hovering below $65 million by the end of 2024. International financial institutions have downgraded the country’s credit ratings, reflecting its growing economic vulnerabilities.

The China-Maldives Free Trade Agreement, implemented in January 2025, has further exacerbated the financial crisis. Despite the agreement's promise, the trade relationship between the two nations is heavily imbalanced, with the Maldives’ exports constituting less than 3% of the total trade, while Chinese imports dominate the market. The FTA has led to a sharp increase in imports from China and a significant decline in government revenue from import duties, adding to the economic strain. In addition, Chinese companies are now gaining access to the Maldives’ crucial tourism sector, diverting financial benefits away from the local economy.

President Muizzu’s government has introduced various measures to address the crisis, including tax hikes on the tourism sector, state-owned enterprise divestitures, and budget cuts. However, these efforts have been insufficient to plug the significant financing gap, which is expected to exceed $500 million in 2025 and $800 million in 2026. The government has requested financial assistance from GCC countries, China, and other struggling nations like Bangladesh and Sri Lanka, but has largely met with rejection. Although India provided some temporary relief through a $750 million currency swap, it is insufficient to cover upcoming debt service payments, including a crucial $1 billion Sukuk repayment in 2026. With its unsustainable debt load, the Maldives faces the risk of default, mirroring the struggles of neighboring Sri Lanka. The crisis also compounds the existential threat posed by climate change to this low-lying island nation, putting its economic independence and political sovereignty at serious risk.