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Maldives’ Chinese debt and political risk could lead to trouble in paradise

Construction workers work at a site as the China-funded Sinamale bridge is seen in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

NEW DELHI (Reuters) – A victory for President Abdullah Yameen in a Sunday election in the Maldives could ramp up pressure on its finances, as the government stays the course on a Chinese-backed infrastructure boom that is in danger of swamping the economy.

The Maldives under Yameen has grown closer to China – to the alarm of traditional ally India – with China funding roads, bridges and an extension to the international airport as part of its Belt and Road Initiative (BRI) of infrastructure projects in almost 70 countries from Mongolia to Montenegro.

But a Chinese takeover of a port in neighboring Sri Lanka and problems in several other countries have led to fears the initiative is a debt trap to hook countries into China’s sphere. China dismisses that.

Yameen is seeking a second five-year term in the Indian Ocean archipelago known for its sun-kissed tourist beaches and diving.

His main rivals have been jailed on charges ranging from terrorism to attempting to topple the government, leading to doubts abroad about the legitimacy of the vote.

The Maldives, a small economy heavily reliant on tourism, is one of the most at-risk countries of any involved with the BRI to the distress of debt, said the Center for Global Development, a Washington D.C.-based think-tank tracking the initiative.

The center, using publicly available information, estimates China’s loans to the Maldives at $1.3 billion – more than a quarter of its annual gross domestic product.

(GRAPHIC – Maldives: Chinese dominance – reut.rs/2MJ4JT4)

graph china dominance

An exiled former prime minister, Mohamed Nasheed, who wants to renegotiate the deals with China, told Reuters in June the loans could be more than $2.5 billion, without citing his source.

Maldivians travel on the China-funded Sinamale bridge in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

Maldivians travel on the China-funded Sinamale bridge in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

Maldivians travel on the China-funded Sinamale bridge in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

Scott Morris of the Center for Global Development said China’s loans gave it a dominant role.

“That raises concerns to have such a dominant role being played by another government,” Morris told Reuters.

“You have to think about what happens in a case of distress – who calls the shots in that situation. China is not bound by the kinds of standards that other major creditors are.”

The two ratings agencies covering the country, Fitch and Moody’s, both rate the Maldives as sub-investment grade, and the World Bank and the International Monetary Fund see a high likelihood of distress if current spending continues.

Moody’s cut its outlook to “negative” in July, citing the boom in infrastructure spending as a cause for concern.

“They have a massive infrastructure program and, as part of that, they have been raising debt,” Anushka Shah from the rating agency told Reuters.

“There has been a big increase in debt since the infrastructure projects started.”

Fitch rates its outlook as “stable”, but also cautioned over rising debt in its last update on the country in May.

Yameen has brushed off worries.

Construction workers work at a site as the China-funded Sinamale bridge is seen in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

Construction workers work at a site as the China-funded Sinamale bridge is seen in Male, Maldives September 18, 2018. REUTERS/Ashwa Faheem

“The international community believes the Maldives can settle the debts,” he told a question and answer session organized by the Maldives National University on Sunday. “We are bringing foreign investment that is the biggest the country has seen.”

He declined to comment further when contacted by Reuters.

POLITICAL RISK

The Maldives’ economy has grown by an average of 6 percent a year for the last five years, buoyed by tourism and construction, according to Fitch.

But both ratings agencies urged investors to be cautious in February after the Supreme Court freed political prisoners, against the wishes of Yameen, sparking a political crisis and leading several countries including China and the United States, to warm their citizens against travel there.

“We take into account fairly elevated political risk in our rating,” said Shah.

“Political tensions affect policy and could also have some spill-over into the tourism sector.”

The political tension had little impact on visitor numbers, the government said, reporting that arrivals rose more than 10 percent year-on-year in the first seven months of 2018 – though visits from China, its biggest market, fell by more than 8 percent.

The infrastructure boom is effectively a “bet” on being able to grow these numbers, said Morris.

“But in the meantime, they have to be able to service that debt as it comes due,” he said.

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7 Comments on "Maldives’ Chinese debt and political risk could lead to trouble in paradise"

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MissIndia
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India is wise in not joining the Chinese Belt and Road initiative. Only small hard up countries join BRI with the lure of aid and funding. India is neither small nor hard up. Chinese funded infrastructural projects (aka Debt Trap Projects) only benefit China based construction companies, material and equipment suppliers and workers. Despite there being no Chinese funded projects in India, the Indian economy has overtaken that of China. Like the US, India needs to restrict the flow of Chinese goods into its vast market, the second largest in the world. There are plans to build 120 new feeder… Read more »
Mumbaikar
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You didn’t find anywhere China getting involved in local politics. But do you know funds Srilanakn Shiva sena and BodhubalaSena ? Do you know these two groups target Muslims in Srilanka on the behest I’d RAW? India controls foreign policy of Bhutan and aims to control foreign policy of every country in this region And you want India to control Maldives’s external affairs? Where in the world are you living?the better option for you to ask India to make Maldives part of Lakshadweep and send an MP from Male to Nee Delhi. Zero self-esteem and cowardly people in Maldives is… Read more »
Mumbaikar
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Didn’t India engineered the defeat of Rajapakshe ‘s defeat in Srilankan election and installed pro-Indian puppet Srisena. India did the same in Bangladesh but India couldn’t do the same in Nepal, although it tried hard to install a hindu rightwing government in Nepal. Do you know the reason? Bangladesh and Srilanka have people like you who don’t think deep but do anything for money. Nepal have real patriots who stood up for the sovereignty of the country!! With people like you the days of free Maldives is numbered. Btw. Challenge to you. Other than IGNH show another great Indian infrastructure… Read more »
Aziz
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You are 100% right. India is the only country who have no good relation with all of her neighbour. I am writing from Bangladesh. In Bangladesh India is rubbering through a puppet hasina govt. So be aware from india

MrIndia
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There you go bro. Unfortunately Maldives is a country where people think dressing up necktie as a symbol of development pathetic state of affairs. If you read Maldivian media you would assume it an Indian media. Lot of money being pumped in.

I have a lot of respect for bengladrshis. You fought for your independence from Pakistan. I believe you still have that Bengali identity strongly with you. I don’t think you will succumb to Brahmin- Bania criminal gang of New Delhi and Nagpore

Mumbaikar
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Surprising is you did not mention anything about Indian takeover of Matala airport in Srilanka , Chabhar seaport in Iran by India. You didn’t talk about growing local recentment over Indian ministry listening ports in Mauritius, and Seychelles. You didn’t talk about economic embargo of India on Nepal for trying to be independent Wow. You should get Indian citizenship and move to India. You speak like Indian. You long to become Indian subject. Don’t you ?

Paankaaz
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Scenerio 1: You have a land, a real estate builder approach u…he gives u a plan n discuss with you that he wl built a building with eight flats, he explains you what material will he use and so on….after the building is complete 4 will be yours n 4 mine…you have exclusive rights on those four flats… Scenerio 2: You have a land, a real estate broker comes and built a building with eight flats…you do not know what material he has used , he did nt bother to discuss the plan with you…after the building is complete you… Read more »