The President of the Republic of Maldives, H.E. Dr. Mohamed Muizzu, is on a significant state visit to India from October 6-10, 2024. This visit marks his first bilateral trip to India since assuming office. President Muizzu had previously visited India in June 2024 to attend the swearing-in ceremony of the Prime Minister and the Council of Ministers.
As per reports, the Maldives’ looming debt crisis and its economy are all high on the agenda for Muizzu’s visit. President Dr. Muizzu met with President Dropadi Murmu and held discussions with Prime Minister Narendra Modi on bilateral, regional, and international issues of mutual interest.
Maldives’ Debt Crisis
The Maldives is currently grappling with a severe debt crisis, with foreign exchange reserves plummeting to just $440 million, barely enough to cover one-and-a-half months of imports. Addressing this economic turmoil is a top priority for President Muizzu during his visit. Reports indicate that discussions will focus heavily on the Maldives’ looming debt crisis and economic recovery strategies.
The Maldives’ debt is estimated at 110% of its GDP, with growing risks of defaulting on its sukuk (Islamic bond). According to Bloomberg data, Maldives is due to make a $25 million payment in October on its approximately $500 million of outstanding sukuk debt. The Maldives issued a $500 million, five-year sukuk in April 2021 with a profit rate of 9.9%. The value of these sukuk has dropped significantly, reflecting investor concerns about the Maldives’ ability to repay.
India recently provided a $50 million lifeline to help the Maldives avoid this outcome, but further support was required. An American Credit Rating company Fitch Ratings projects the Maldives’ total external debt obligations to grow to $557 million in 2025 and exceed $1 billion by 2026. The island nation’s foreign reserves stood at just $437 million as on end of August 2024.
India has agreed to extend substantial financial support to the Maldives, including a US$400 million currency swap deal with the Reserve Bank of India (RBI) and an additional INR 30 billion (US$357 million) in another swap agreement. This financial aid is crucial for the Maldives to manage its immediate financial obligations and stabilize its economy. The support will allow businesses to conduct transactions in local currencies rather than US dollars, easing the financial strain on the Maldives.
India’s Strained Relationship with Maldives
The election of Dr. Mohamed Muizzu in November 2023 marked a significant shift. His campaign included an “India Out” slogan, which called for the removal of Indian military personnel stationed in the Maldives.
The presence of Indian troops in the Maldives had been a contentious issue. Muizzu’s administration ordered the eviction of these troops, which was seen as a move to reduce India’s influence. This decision was part of a broader strategy to balance relations with other major powers, notably China. Relations were further strained by derogatory comments made by Maldivian officials about Indian Prime Minister Narendra Modi.
Ahead of his state visit to India in October 2024, President Muizzu softened his anti-India rhetoric, acknowledging the financial strain and expressing a willingness to mend ties.
Despite past tensions, both leaders have expressed a commitment to strengthening bilateral relations. PM Modi reaffirmed the Maldives’ pivotal role in India’s ‘Neighbourhood First’ policy and SAGAR vision during a meeting with President Muizzu. Modi emphasized the centuries-old relationship between the two nations, highlighting India’s role as the Maldives’ nearest neighbor and close friend. Despite recent tensions, both leaders expressed a commitment to enhancing their relationship.
President Muizzu’s visit to India is a crucial step in addressing the Maldives’ economic challenges and strengthening bilateral ties. The discussions and agreements made during this visit are expected to lend further momentum to cooperation and robust people-to-people ties between the two countries. Both leaders have adopted a shared vision of a comprehensive economic and maritime security partnership, underscoring the importance of their relationship in the region.
According to the Ministry of External Affairs, President Muizzu’s itinerary also includes visits to Mumbai and Bengaluru, where he will attend various business events aimed at strengthening economic ties. The Maldives is a key maritime neighbor for India in the Indian Ocean Region (IOR) and holds a special place in Prime Minister Modi’s vision of ‘SAGAR’ (Security and Growth for All in the Region) and India’s ‘Neighbourhood First Policy’.
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