‘Our friendship will be bright & clear,' says Modi as India extends $565 mn line of credit to Maldives
India 25 July agreed to extend a line of credit of $565 million (Rs 4,850 crore) to Maldives, along with reducing the annual debt repayments (by 40 percent) owed by the island nation to New Delhi, in an effort to aid Malé's fragile economic situation. The Indian PM and Maldivian President also agreed to the terms of reference for opening negotiations for a free trade agreement.
New Delhi: Prime Minister Narendra Modi Friday declared that ties between India and Maldives will 'always remain bright and clear' highlighting the growth in ties between the two nations over the last fourteen months. He was speaking at a joint press conference with the Maldivian President 25 July.
The other major announcement made by the two leaders is the agreement on the terms of reference for a free trade agreement. The Maldives-China FTA, first signed in 2014 came into effect on 1 January.
The Maldivian President said: 'I am also pleased to announce the initiation of negotiations for a free trade agreement between India and the Maldives. This landmark initiative marks a significant step forward in strengthening our economic partnership.'
The two countries signed four memorandums of understanding (MoUs) and three agreements. The agreements included the reduction of the annual debt repayments owed by Malé to India. New Delhi has through the years extended a number of lines of credit to the island nation, as well as purchasing treasury bills and offering currency swap lines, to keep the Maldivian economy ticking.
Modi's visit to Malé is his third to the island nation and the Indian Prime Minister will be the 'guest of honour' at Maldives' independence day celebrations Saturday, before returning to India.
Modi also handed over 3,300 social housing units in Hulhumale, which was constructed through Indian development assistance. The two leaders inaugurated a number of other projects including the roads and drainage systems in Addu city.
Last year, during Muizzu's visit to India in October, New Delhi had extended twin currency swap lines for $400 million and Rs 3,000 crore respectively to help Malé stave off an immediate liquidity crunch. The nation's currency reserves had fallen to the low of $492 million in May 2024, from around $748 million in May 2023, indicating a persistent current account deficit.
The liquidity crisis had led the American ratings agency Fitch Ratings to downgrade Maldivian credit to CCC+ or 'junk status' in the summer of last year. However, the current reserves held by the Maldives Monetary Authority (MMA) is at around $832 million, as per its latest statistics.
Malé has drawn out most of the $400 million currency swap line, which has helped shore up its currency reserves. With the new LoC, India's budgetary support and development partnership, which is already estimated to be over a billion dollars, will grow further. India has been rolling over treasury bills worth roughly $100 million over the last year.
Maldives' external debt servicing obligations are estimated to hit $1.07 billion by 2026, which would be roughly double the current estimates of $500 million for the current year. Its overall debt is estimated at $10.9 billion by the International Monetary Fund (IMF), which is roughly 140 percent of its total gross domestic product (GDP).
Also read: China FTA won't benefit Maldives, hope India steps in to help avert debt default—ex-president Nasheed
Diplomatic thaw in the last year
However, the partnership has seen a big change since the summer of 2024, given the earlier diplomatic chill that had set in subsequent to Muizzu's assumption of the presidency at the end of 2023. Comments made by junior ministers in Muizzu's government had set off a 'boycott Maldives' social media trend.
The Maldivian President further focused on the removal of roughly 80 unarmed Indian troops from the island nation. Eventually by May 2024, the Indian military soldiers were replaced by a technical team focused on maintaining three defence platforms for the island nation.
Indian tourists that had thronged the archipelago in large numbers right after the COVID-19 lockdowns were lifted, have since slowed down in the last 18 months. The two leaders on Friday agreed to deeper cooperation in the tourism sector, which marks a serious turnaround in ties.
Economic interests have brought Malé and New Delhi together, especially after Muizzu in the early months of his tenure travelled to both Turkey and China in an attempt to shore up international support for the Maldivian economy. By November 2024, Muizzu had visited New Delhi twice—for Modi's inauguration in June and a state visit in the first week of October.
China has increased its development partnership and economic engagement with the island nation in the last two decades. Muizzu visited China for a state visit in January 2024, when Malé and Beijing signed over 20 MoUs.
The visit and the large number of MoUs had led to talk of potential growth in ties between Malé and Beijing under Muizzu, who had stormed to power on an 'India Out' campaign. However, both New Delhi and Malé have now agreed to open negotiations for a bilateral FTA.
(Edited by Viny Mishra)
Also read: India-Maldives open FTA talks as Modi set to visit island nation amidst diplomatic thaw
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