The International Monetary Fund (IMF) has called for "urgent and stronger" fiscal consolidation to rescue the Maldives' struggling economy, despite its thriving tourism sector.

While the Indian Ocean archipelago projects a 5% economic growth in 2025, the IMF cautioned that underlying risks could derail this optimistic outlook. "There is significant uncertainty around the forecasts, with risks skewed to the downside," the IMF stated on Tuesday. "Urgent and stronger fiscal consolidation is essential, along with comprehensive expenditure rationalization to curb excessive spending."

Last year, the Maldives rejected an IMF bailout and instead implemented severe budget cuts. President Mohamed Muizzu notably halved his salary and imposed a 10% pay reduction across most public sector jobs. Despite official claims in September that the financial difficulties were "temporary," the IMF warned that high fiscal deficits and public debt remain pressing concerns requiring immediate policy action.

"The Maldives is at a pivotal juncture in restoring macroeconomic stability and ensuring debt sustainability," the IMF noted.

Beyond its reputation for luxury resorts and pristine beaches, the Maldives has become a geopolitical hotspot. China and India, the nation's largest bilateral lenders, have ramped up financial support amid shifting alliances. Since Muizzu's 2023 election victory, Beijing has pledged increased funding, which the president praised as "selfless assistance." Meanwhile, Indian Prime Minister Narendra Modi welcomed Muizzu in New Delhi last October, extending economic support to the island nation.

As of the first quarter of 2024, the Maldives' foreign debt stood at $3.37 billion—around 45% of its GDP. China holds roughly 20% of that debt, with India accounting for just under 18%.