The strategically-placed Indian Ocean nation of the Maldives, which has borrowed heavily from China and shifted allegiance from India, is at high risk of "debt distress," the IMF warned on February 7.
Beijing has pledged more funding for the Maldives since pro-China President Mohamed Muizzu took power in November.
Mr. Muizzu thanked China last month for its "selfless assistance" for development funds after a visit to Beijing.
The International Monetary Fund did not give details of the Maldives' foreign debt but said there was a need for "urgent policy adjustment".
Also Read: 2024 Interim Budget | India increasing allocation for Maldives, ₹400 crore revised to ₹770.9 crore
"Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated," the IMF said after a review of the country's economy.
"The Maldives remains at high risk of external and overall debt distress".
The archipelago, famed for its white sand beaches and where tourism accounts for nearly a third of the economy, has recovered economically from the COVID-19 pandemic.
But while a planned airport expansion and an increase in hotels are projected to boost growth, the IMF said "uncertainty surrounding the outlook remains high and risks are tilted to the downside."
Mr. Muizzu's mentor, former President Abdulla Yameen, who ruled for five years until 2018, borrowed heavily from Beijing for construction projects.
That left it owing 42% of its more than $3 billion foreign debt to China in 2021, according to the World Bank, citing the Maldives' Finance Ministry.
Also Read: India to ‘replace’ military personnel in the Maldives
Mr. Muizzu, who has requested that Indian troops operating three reconnaissance aircraft in the Maldives leave by May 10, has vowed to strengthen his military to defend the country's vast maritime territory.
Global east-west shipping lanes pass through the nation's chain of 1,192 tiny coral islands, stretching around 800 km across the equator.
