The Wire Staff 
New Delhi: India sealed two currency swap deals – one in US dollars and another in Indian Rupees – worth $760 million to tackle the Maldives’ deepening external debt crisis, with discussions to continue on further measures, during Maldivian President Mohamed Muizzu’s visit to New Delhi
The announcement was made after the formal talks between Indian Prime Minister Narendra Modi and the Maldivian leader, who is on a six-day visit to India. The visit is Muizzu’s first trip after taking over as president in November last year.
It marks a high point in the process of reconciliation between the Muizzu government and India following a rocky start after his presidential victory, which came on the back of a campaign targeting his predecessor Ibrahim Mohamed Solih’s close ties with India.
A defining image from his election campaign showed Muizzu wearing a red T-shirt with the slogan ‘India Out’ as he marched in protests against the presence of Indian troops in the Maldives.
Just a day after his inauguration, Muizzu formally requested the withdrawal of Indian soldiers stationed to operate a Dornier aircraft and two helicopters donated by India for search and rescue missions.
This request marked the beginning of public tensions, with Muizzu’s government also opting not to renew a hydrography agreement, while he expressed concerns about dependency on a single country for essential goods. His visit to China in January, prior to any trip to India – a rare move for a newly elected Maldivian president – further fuelled perceptions of his pro-China leanings.
The normalisation of ties began with India renewing the traditional quota of essential goods in April, followed by the first visit by Maldivian foreign minister in May. Muizzu was then invited for Modi’s swearing-in ceremony along with other South Asian leaders. Later, Union external affairs minister S Jaishankar also visited Maldives.
Now, nearly 11 months into his presidency, Muizzu has fulfilled his key campaign promise to remove Indian soldiers. However, he also stood alongside Indian Prime Minister Narendra Modi in New Delhi on Monday to witness the signing of two agreements for a currency swap that will help alleviate the Maldives’ critical foreign exchange shortage.
“I am thankful for the Indian government’s decision to provide support in the form of Rs 30 billion ($360 million), in addition to the $400 million bilateral currency swap agreement, which will be instrumental in addressing the foreign exchange issues we are currently facing,” said Muizzu.
He added that India and Maldives also agreed to “remain engaged on further measures that will bolster the Maldives’ economic resilience and stability”.
Tourism is the Maldives’ primary economic driver, and the COVID-19 pandemic proved disastrous for the Indian Ocean Island nation. Although tourist arrivals have increased since the pandemic, earnings remain low due to reduced spending per visitor and shorter stays.
At the end of August, Maldives’s official international reserves stood at $443.88 million, which would have sustained imports for one and half months. It was a drop of 36% from the same period last year, following the pattern of decrease since December 2022. The latest figure on Maldives’ central bank public database shows that the foreign reserves for September stood even lower at just $371.22 million.
This quarter, Maldives had to service external debt of nearly $110 million, which was a quarter of its foreign exchange reserves. Next year, the total external debt servicing will increase to $557 million, doubling to more than $1 billion in 2026.
Two international ratings agency, Fitch and Moody’s, have already downgraded Maldives’ debt ratings in last couple of months.
Earlier this year, India agreed to roll-over of $100 million worth of Treasury bills subscribed by State Bank of India for a year. On Monday, Maldives announced that it has paid the $25 million semi-annual payment for Sukuk, a sharia-compliant financial bond, avoiding a default.
Indian foreign secretary Vikram Misri emphasised that India is helping the Maldives navigate its severe economic crisis. “The idea is essential to bolster’s Maldives foreign exchange reserves… it generates confidence in Maldives’ existing foreign exchange position and allows them to enter into deals or discussions where they need this enhanced foreign exchange that they can draw on,” he stated during a media briefing about the visit.
He also confirmed that Maldives had sought further assistance during the talks. “There are a number of proposals that were made today. We have not had the time to do due diligence on these proposals, so it would not be proper for me to comment on these proposals except to say that we have taken note of the proposals, and we will now be studying those and be in touch with our Maldives colleagues in the coming weeks and months to see what further action is required,” he said.
The visit set the stage for the launch of the RuPay card in Maldives, with President Muizzu also calling for an increase of Indian tourists to the isles. India had been the largest source of tourists for Maldives immediately after the end of the pandemic, but the numbers had fallen substantially last year. China is now top source market for tourists, followed by Russia and Italy.
Both leaders agreed to initiate discussions on a bilateral free trade agreement.
Misri noted that President Muizzu expressed a willingness to “reinforce” defence and security ties with India, a topic which came up “significantly and substantially” in the talks. “…In the discussions today as well, it was recognised on both sides that the two sides inhabit the same strategic landscape, and that the challenges this landscape encounters are shared challenges, whether it be terrorism, drug trafficking, or illegal fishing. There is a commitment to working together to combat these challenges,” he said.
India will be repairing and refitting a Maldivian coast guard ship – donated earlier by New Delhi – on gratis basis, Misri announced.
The joint statement underscored India’s commitment to assisting the Maldives in safeguarding its territorial waters and reaffirmed India’s role in developing the coast guard port at Uthuru Thila Falhu.
Maldives, with its vast Exclusive Economic Zone, is exposed to traditional and non-traditional maritime challenges including piracy, IUU fishing, drug smuggling, and terrorism. The two countries agreed that India, as a trusted and dependable partner, will work closely with Maldives in sharing of expertise, augmenting capabilities and undertake joint cooperative measures, as per needs and requirements of Maldives; they also agreed that the ongoing Maldives National Defence Force (MNDF) ‘Ekatha’ harbour project at Uthuru Thila Falhu (UTF) with India’s assistance will significantly contribute towards enhancing MNDF’s operational capabilities, and agreed to extend full support for its timely completion. (India and Maldives: A Vision for Comprehensive Economic and Maritime Security Partnership)
According to the Indian side, the issue of cooperation on hydrography – despite the Maldives previously withdrawing from the bilateral agreement – was addressed during the discussions. “There was a lot of discussion today on the need for the Maldives to continue to build its own capacities in this particular field. The president of the Maldives flagged the point that the Maldives looked forward to assistance in this capacity building. I imagine those discussions will continue.”
India’s top Indian diplomat added that there was “very little doubt if any in our mind that we will continue to work with Maldives in a very close manner as we did previously in responding to the defence and security challenges that face us”.
Muizzu invited the Indian prime minister to visit the Maldives next year to commemorate 60 years of diplomatic relations, an invitation the Indian side has accepted.
The Maldivian President’s statements, endorsing India’s role in maritime security in Indian ocean and the signing of several agreements, sparked a wave of criticism from opposition leaders.
Fayyaz Ismail, chairman of principal opposition party Maldivian Democratic Party (MDP), stated that Muizzu’s cooperation with India showed that the ruling coalition “PPM-PNC’s rhetoric during the election was nothing but fear-mongering”.
In a post on X, he wrote, “Proceeding with the hydrography agreement and projects like the UTF, Addu infrastructure works, and the potential establishment of a consulate in Addu – portrayed by the current government’s leaders as a colonisation plan – shows how irresponsible it was to depict ties with India as a threat to the Maldives”.
Abdulla Shahid, Maldives’ opposition leader and former foreign minister, also remarked that many of the projects President Muizzu endorsed had been initiated by the previous government. “What we are seeing is the current administration coming to the realisation that international relations cannot be conducted based on lies and deceit. What we are seeing is the administration’s naivety and inexperience in diplomacy,” Shahid noted.
Former home minister Umar Naseer was equally critical, accusing Muizzu of making a “U-turn” on India. He argued that allowing an Indian consulate in Addu or having Maldivian police trained by Indian instructors would give India a backdoor entry into the Maldives.