COLOMBO – When Ahmed Siyam, a Maldivian business tycoon, rushed to repay a $ 127.5 million loan he received from the state-owned Export-Import Bank of China, he appeased fears in the Indian Ocean archipelago that the Maldives could fall into a Chinese debt-trap. But the August repayment reminded many of the risk of carrying billions of dollars in Chinese credit shrouded in secrecy.

Chinese bank EXIM put the Maldivian government on alert in July by advising Sun Siyam, as the businessman is best known, to repay $ 10 million of the loan in early August. Siyam’s company, Ahmed Siyam Holdings (ASH), reportedly failed to find the amount at that time.

The Chinese bank also had in its sights the government of President Ibrahim Mohamed Solih, calling on the state to settle the debt in the event of Siyam default. EXIM Bank was able to make such a request because its loan to the Maldivian private company was backed by a sovereign guarantee, the first of its kind.

“ASH had an interest payment, reimbursement and commitment fee due in July,” a senior official in President Solih’s office told the Nikkei Asian Review. “As ASH was unable to service the debt on the due date, the government as guarantor was asked to repay it.” The official said if ASH had defaulted, the government would have been forced to pay instead under the terms of the deal.

China’s pressure on the businessman and government was unprecedented in the strategically located South Asian country, and seasoned South Asian observers were quick to point out as a warning to others. countries in the region.

Former Maldives president Abdulla Yameen, left, was celebrated in Beijing by President Xi Jinping in late 2017 – and sent to jail in 2019 for money laundering. © Reuters

The firm management of the ASH loan by the EXIM bank was a reminder of the obscure conditions under which China granted loans to the Maldives when President Abdulla Yameen was in office. His authoritarian five-year term ended in 2018 and was noted for his rapprochement with China. Yameen was jailed in late 2019 for money laundering activities linked to the country’s lucrative tourism industry.

Exim Bank struck a deal with Siyam in early 2016 to build the country’s largest hotel complex, and Wang Fukang, Chinese Ambassador to the Maldives, attended the signing ceremony. However, the Chinese Embassy in the capital Malé has only ever published very general details of the project on its website.

When the loan was made to Siyam, he was a member of parliament and a supporter of Yameen’s ruling coalition. It was part of the $ 1.4 billion the Maldives officially owes China. Solih’s outspoken political allies believe the debt is actually higher – closer to $ 3.5 billion in a $ 5 billion economy, but the Chinese government refutes this.

Transparency Maldives, the national arm of Transparency International, a global anti-corruption organization, sees the loan as a corollary of the political bond between Yameen and Siyam. “The loan to Siyam and the sovereign guarantee must be considered with the following fact: Siyam’s party was in coalition with Yameen’s party and was a strong supporter of Yameen’s policy,” Asiath Rilweena, executive director, told Nikkei of Transparency Maldives. She called the deal “quite unusual” given that it is the only case of sovereign guarantee provided for a loan to a private entity.

Shortly after his election in 2018, Solih ordered an investigation into financial transactions during the Yameen years, including loans from China. Investigators attached to the Presidential Commission on Corruption and Asset Recovery are still sifting through the documentation due to the “complex nature of the cases,” a government source told Nikkei.

Information that has leaked this year hints at what may be in store. According to media citing data from the Ministry of Finance, Chinese loans to Maldivian state-owned enterprises backed by sovereign guarantees have been estimated at $ 935 million. The beneficiaries included the Housing Development Company, a state-owned enterprise involved in a high-rise housing project. Beijing has reportedly loaned an additional $ 600 million to the Maldivian government.

Funds from the Beijing Belt and Road Initiative (BRI) helped finance the construction of a bridge connecting Male to the main airport on another island. The BRI has also funded the expansion of the airport and the modernization of the electricity grid, among other infrastructure projects. The building frenzy took off after President Xi Jinping’s visit in 2014, the first time a Chinese leader has visited the Maldives.

Senior financial analysts in the Maldives told Nikkei there was no reason to be unduly concerned about China’s debt portfolio. “Obtaining grants and concessional financial support from friendly sources is a necessary practice,” said Fazeel Najeeb, the former governor of the Maldives Monetary Authority (MMA), the central bank. “Such agreements are formal and it is necessary that all parties to such an agreement fulfill their obligations when they are due.”

The pressure on the Maldives to meet its international debt obligations has become paramount as it grapples with an economic downturn from the impact of the COVID-19 pandemic, which has stifled the tourism, the main source of foreign exchange in this country of 400,000 people. who inhabit 198 of its 1,190 islands.

In 2019, the Maldives attracted a record 1.9 million spending holidaymakers. It only attracted 384,548 tourists this year through July, down 61% year-on-year. The situation deteriorated in the second quarter after the Maldives closed its airport from mid-March to mid-July as the pandemic spread.

In March of this year, Fitch Ratings downgraded the Maldives rating from B + to B, from “stable” to a “negative” outlook. The global rating agency said “a deep recession seems inevitable” given that tourism accounted for 25% of gross domestic product directly, and more indirectly. Moody’s, another global rating agency, was also gloomy, downgrading the Maldives in May from B2 to B3 with a “negative outlook”.

The Maldives is due to pay 117 million dollars in foreign debt and interest by the end of this year. According to data released by the MMA, foreign exchange reserves stood at $ 649 million in July. But Thomas Rookmaaker, director of sovereign ratings at Fitch Ratings, told Nikkei that net reserves of short-term liabilities – which could be used to repay loans – stood at just $ 156 million in July, up from $ 311 million in January.

Rookmaaker said “the risks are biased downward given the limited external buffers.” He said the rating agency expects “the Maldives to continue to benefit from financial support from its multilateral and bilateral partners.”

India has already stepped in to help ease the debt burden of its little neighbor. It provided $ 1.4 billion in financial assistance in December 2018 as part of New Delhi’s efforts to regain influence in the country after China’s overthrow in the Yameen years.

“The government has prioritized its debt service obligations,” the senior official in the president’s office told Nikkei. “This includes using the funds we received in 2018 and 2019, securing additional financing at concessional rates, reviewing our spending, and working with our international partners.”

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