China Boosts Maldives with Financial Support Amid Debt Crisis Concerns

China has pledged to strengthen trade and investment in the Maldives, raising hopes of avoiding a debt crisis. A memorandum of understanding between China's central bank and the Maldives aims to boost local currency transactions and investment. Despite improvements, analysts warn that the debt situation remains critical.

In a move to stave off a looming debt crisis, the Maldives received a significant boost on Friday as China agreed to enhance trade and investment efforts in the island nation. The agreement comes amid concerns that the Maldives could become the first country to default on Islamic sovereign debt.

China's central bank, the People's Bank of China (PBOC), and the Maldivian Ministry of Economic Development and Trade inked a 'memorandum of understanding' aimed at facilitating local currency transactions and direct investments. This MOU represents the latest pivot of the Maldives towards China, moving away from its traditional ally, India.

Despite these positive developments, analysts, including Moody's, caution that the Maldives is still at risk of defaulting on its debts. The country's central bank has assured it will make upcoming debt payments, but the exact amount owed remains uncertain. The Maldives owes a significant portion of its debt to regional powers China and India.

(With inputs from agencies.)