Is praising a child's drawing—even if it's seen as scribbles—considered a lie, and what is the ideal response in this situation?

Lying to children is not permissible; it is forbidden just like lying to others. It has been narrated from the Prophet, peace and blessings be upon him, that he warned against lying even when dealing with children. In such situations, one should use ma'areed (euphemisms or double entendre), which means that a Muslim speaks words intending one thing, while the apparent meaning of the words suggests something else. An example is Abu Bakr's statement, "He is a guide who guides me," while he was migrating with the Messenger. He intended a guide to Allah, but the listener understood him to be a guide for the path. Accordingly, you can tell a child, "It's a beautiful drawing," intending that it is beautiful from their perspective, to avoid embarrassment and to please them.