International credit rating agency Fitch downgraded the Maldives Wednesday and warned that South Asia's tourist paradise could be headed for a sovereign default on its foreign loans.

The downgrade came six weeks after the IMF warned the Maldives against a looming "debt distress", as the small but strategically placed luxury tourist destination looks set to borrow more from its main creditor China.

Fitch bumped the archipelago down one spot to 'CCC+' from 'B-' on its ratings metrics, reflecting risks associated with dwindling foreign currency reserves that dropped to $492 million in May, the agency said in a statement.

It said the government's debt servicing obligations, amounting to $409 million this year, would add to severe stress.

Since winning office last year, President Mohamed Muizzu has reoriented the atoll nation -- known for its upmarket beach resorts and celebrity vacationers -- away from traditional benefactor India and towards China.

In April, his party won parliamentary elections in a landslide after promising to build thousands of apartments, reclaim more land for urban development and upgrade airports, all with Chinese funding.

Fitch said its baseline assumed the Maldives will continue to rely on bilateral and multilateral financing support.

The country could leverage its "geopolitical strategic importance and the expectation of future policy actions by the new government" to raise funding, the ratings agency said.

Maldives is a small nation of 1,192 tiny coral islets scattered 800 kilometres (500 miles) across the equator, but it strategically straddles key east-west international shipping routes.

China has pledged more funding since last year's victory by Muizzu, who thanked the country for its "selfless assistance" for development funds on a state visit to Beijing shortly after he took power.

Official data showed the Maldives' foreign debt reaching $4.038 billion last year, about 118 percent of gross domestic product and up nearly $250 million from 2022.

As of June 2023, the Export-Import Bank of China owned 25.2 percent of the Maldives' external debt and was the country's biggest single lender, Maldives finance ministry figures showed.