Maldives: Newly elected president expected to adopt a more pro-China stance

Event

After the second round of the presidential elections, the presidency of Maldives went to the opposition candidate. On 30 September, Mohamed Muizzu, opposition leader of the Progressive Party of Maldives (PPM) and mayor of the capital Malé, secured 54% of the votes and defeated incumbent President Ibrahim Mohamed Solih of the Maldivian Democratic Party (MDP). Muizzu’s 5-year term will start in November. Parliamentary elections are scheduled in 2024.

Impact

The latest result, which was in the air after Muizzu’s victory at the first round of the elections with 46% (against 39% for Solih), confirmed an alternation of power in the archipelago. As Muizzu’s campaign was embodied with “India out” slogans, the change in presidential power should coincide with a more favourable stance towards China compared to the past five years. Solih’s rule was indeed pro-India – following years of close economic and financial ties with China under his predecessor Abdullah Yameen, which led to many Chinese infrastructure projects under the “Belt and Road Initiative” but also to high public debt. Still, Indian PM Narendra Modi quickly congratulated Muizzu for his victory. Now, even though it is still unclear whether Muizzu will require to end alleged Indian military presence in the country, as pledged during his campaign, he is likely to be pragmatically open to both India and China. Indeed, keeping friendly relations with Maldives’ biggest neighbours is essential. Therefore, a rebalancing of foreign relations is likely to happen as the country’s new leader will probably avoid its country being trapped in the India-China competition, hoping to win on both sides.

Muizzu’s victory could also have consequences on domestic politics. Former President and former PPM leader Yameen, who was convicted of corruption in December 2022 and sentenced to 11-year imprisonment, was transferred to house arrest after the elections. So, in the coming months, it will be interesting to see whether Muizzu’s presidency will further impact Yameen’s future, who could eventually become again an active major political figure.

Muizzu’s main priorities will be to manage the housing crisis in Malé, the weakening economic outlook amid global slowdown and the heavy public debt burden. Despite a decrease since the historic peak of 2020, the public debt-to-GDP ratio remains very high, above 100% with nearly half of it being external (with a high share owed to China). Although the crucial tourism sector returned to pre-Covid levels, its economic contribution is not expected to enable external public debt ratios to become more sustainable soon. In the medium term, debt reduction is expected to continue only at gradual pace. Meanwhile, the structurally wide current account deficit (18.7% of GDP in 2022) and deteriorating global monetary conditions will maintain financial pressure on Maldives. The country is facing a negative trend in foreign exchange reserves, fuelled by currency support and expanding project-related spending. In July, foreign exchange reserves covered less than six weeks of imports and were close to this year’s external debt service. Should this trend persist, a downgrade of the short-term political risk rating (5/7) is not ruled out in the near term.

Analyst: Raphaël Cecchi – r.cecchi@credendo.com