Maldives President Mohamed Muizzu‘s first state visit to India was the announcement of a $400 million currency swap agreement. This financial arrangement shows the bilateral relations and India’s continued commitment to its Neighbourhood First policy.
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The Maldives is struggling with a severe economic crisis with its foreign exchange reserves plummeting to $440 million, barely enough to cover one and a half months of imports.
The nation faces the risk of a debt default with over $600 million in external debt service due in 2025 and more than $1 billion in 2026, as said by global credit rating agency Moody’s.
Moody’s downgraded the Maldives’ credit rating, warning of materially increased risks of default. Amid this crisis, Mohamed Muizzu’s visit to India is seen as a crucial step to secure financial aid that could stabilize the country’s foreign currency reserves and prevent a full-blown economic collapse.
President Mohamed Muizzu is expected to request a bailout from India, worth hundreds of millions of dollars.
In his email interview with the BBC ahead of his visit, Mohamed Muizzu expressed optimism, stating that India, as one of Maldives’ biggest development partners will likely extend support to ease the island nation’s economic burden.
India has already provided financial aid of $1.4 billion to the Maldives for various infrastructure and development projects. The visit is seen as a realization by Mohamed Muizzu of how heavily dependent Maldives is on Indian support especially given that financial aid from other partners including China.
Tensions had escalated between India and the Maldives following Mohamed Muizzu’s election on an India Out platform, which called for the removal of Indian troops stationed in the Maldives for humanitarian purposes.
Despite these tensions, Mohamed Muizzu’s visit shows a softening stance, as both countries plans to rebuild trust and reinforce their shared interests in regional stability.
An outcome of the bilateral talks was the announcement of a $400 million currency swap agreement, a financial tool that allows two nations to exchange currencies to stabilize their economies and manage foreign exchange reserves.
The currency swap amounting to ₹3,000 crore is designed to address the Maldives’ current foreign exchange reserve issues.
This agreement further strengthens the Maldives’ financial stability and shows India’s role as a critical economic partner.
Prime Minister Narendra Modi reaffirmed India’s commitment to supporting the Maldives, addressing India’s role as a first responder in times of crisis.
Modi highlighted several examples of India’s support including providing essential commodities, vaccines during the COVID-19 pandemic and emergency assistance for drinking water shortages.
Additionally, Modi virtually inaugurated the Hanimaadhoo International Airport on the Haa Dhaalu Atoll and handed over 700 social housing units as part of infrastructure support.
India’s involvement in infrastructure development across the Maldives is huge. Beyond the inauguration of the airport, other projects include a drinking water and sewerage system that benefits nearly 30,000 people across 28 Maldivian islands.
The Maldives also benefits from India’s Greater Male Connectivity Project. Such projects are crucial to boosting the Maldives’ tourism industry.
The recent launch of RuPay cards in the Maldives, an initiative of India’s National Payments Corporation signals growing financial integration between the two nations. This will make it easier for Indian tourists and businesses to engage with the Maldivian economy.
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The Maldives is situated at a critical juncture in the Indian Ocean. The Indian Ocean is a strategic waterway for global trade and both India and China are vying for influence in the region.
Prime Minister Modi underlined the importance of the Maldives in ensuring security in the Indian Ocean Region and how both countries can collaborate in maritime security particularly to counter piracy and illegal fishing.
President Mohamed Muizzu assured that the Maldives will not disrupt the regional balance by inviting Chinese military personnel into the country.
President Mohamed Muizzu’s election campaign had concerns in India with his promise to push for an India Out agenda, which involved the removal of Indian military personnel stationed in the Maldives.
The removal of Indian military personnel was part of Mohamed Muizzu’s commitment to doing what the people of the Maldives asked. However, this move sparked concerns within the Indian government especially considering China’s growing presence in the Indian Ocean.
India replaced its military personnel with competent technical staff to maintain the helicopters and aircraft previously gifted to the Maldives for humanitarian and medical aid.
In February 2024, tensions increased when a Chinese spy ship docked in the Maldives. Similar incidents had occurred in Sri Lanka, where Chinese vessels were disguised as research ships.
Despite President Mohamed Muizzu’s perceived pro-China stance, he has since taken steps to reassure India that his government seeks to maintain balanced relations and does not have an India Out agenda.
Maldives President Mohamed Muizzu’s visit is a reset in India-Maldives diplomatic ties. His meeting with Prime Minister Modi and Indian officials comes after a year of diplomatic strain.
One of the events that strained relations was Mohamed Muizzu’s visit to China in January 2024, which was seen as a diplomatic snub to India.
Upon his return, Mohamed Muizzu announced plans to reduce the Maldives’ dependency on India for healthcare, medicines and other essential imports.
Despite these tensions, official communication between the two nations has increased. Mohamed Muizzu attended Modi’s swearing-in ceremony for a third term in June 2024.
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