The treaty returning sovereignty over the Chagos Archipelago to Mauritius, disestablishing the British Indian Ocean Territory, seems to be on track for ratification:

https://commonslibrary.parliament.uk/research-briefings/cbp-...

The consequences for the .IO ccTLD are still unclear and ultimately will depend on how the United Nations, the ISO 3166 Maintenance Agency, and ICANN respond. I’m not aware of anything more definitive than ICANN’s blog posting from November 2024, which emphasizes that “much of the discussion about .io is simply speculation” but also acknowledges the possibility that “a five-year time window will commence during which time usage of the domain will need to be phased out.”

https://www.icann.org/en/blogs/details/the-chagos-archipelag...

I wouldn’t use a .IO domain name for anything important.

What other country can it be transferred to?

I think ICANN just needs to make a rule that basically says if a country's domain is being used as a general domain (i.e. ai, tv, io, etc), it becomes a general domain if the country no longer exists or needs the domain (like a name change).

This feels like an issue that is only an issue because of a hardline that should just be a general convention.