Maldives Enters New Chapter with Indian Financial Aid

India has agreed to provide significant financial aid to the Maldives in a bid to support its struggling economy. This announcement follows a series of discussions between Maldives President Mohammed Muizzu and Indian Prime Minister Narendra Modi during Muizzu’s five-day visit to India.

The financial package includes a notable $400 million currency swap agreement, along with an additional 30 billion Maldivian rupees (approximately $357 million or £273 million) aimed at facilitating business transactions in local currencies rather than relying solely on the US dollar. This development comes at a crucial time as the Maldives faces an impending debt default, with foreign exchange reserves dwindling to $440 million, enough to cover only about one and a half months of imports.

During the meeting, Modi welcomed Muizzu with red-carpet treatment, signaling a potential thaw in relations that had soured in recent months. Modi characterized the visit as the start of a “new chapter” in bilateral ties, emphasizing India’s commitment to the progress and prosperity of the Maldivian people. “India will always be there for the progress and prosperity of the people of Maldives,” he stated, underscoring the significance of the financial aid package.

The relationship between Male and New Delhi has experienced significant strain since Muizzu assumed office in November 2023. Following his election, Muizzu opted to visit Turkey and China before India, a departure from the tradition established by previous Maldivian leaders who typically prioritized a visit to Delhi. This decision was perceived as a high-profile snub, especially considering Muizzu’s January trip to China.

Tensions escalated when derogatory remarks about Modi were made by several Maldivian officials, further complicating diplomatic relations. However, analysts suggest that the Maldives’ dire economic situation has prompted the leadership to reevaluate its stance and mend ties with India.

In a statement following their discussions, Muizzu expressed gratitude towards India for its ongoing support and acknowledged the crucial role of budgetary assistance in addressing the Maldives’ foreign exchange challenges. He indicated that the two nations are also set to commence negotiations on a free trade agreement, marking a step toward deeper economic collaboration.

Before meeting with Modi, Muizzu conveyed to the BBC his expectations of India’s support, highlighting the historical partnership between the two nations. “India is fully cognizant of our fiscal situation, and as one of our biggest development partners, will always be ready to ease our burden, find better alternatives, and solutions to the challenges we face,” he stated.

This shift in tone contrasts with Muizzu’s previous initiatives aimed at reducing India’s influence in the Maldives while strengthening ties with China. In February, his administration controversially permitted a Chinese research vessel to dock in the Maldives, an action that raised alarms in Delhi due to concerns that the ship’s mission could potentially aid the Chinese military in submarine operations.

Despite the speculation surrounding his foreign policy leanings, Muizzu has adamantly rejected the characterization of being pro-China, instead promoting a policy stance of “Maldives First.” Nevertheless, the Maldives continues to maintain substantial economic ties with China, which has extended approximately $1.37 billion in loans to the island nation.

The recent financial agreements with India highlight a pivotal moment for the Maldives, as the country seeks to stabilize its economy while navigating complex geopolitical relationships. The collaboration signals a renewed commitment to mutual understanding and cooperation between the two nations, fostering hope for a more stable economic future for the Maldives amidst its current challenges.