India to extend $400 million financial lifeline for Maldives as debt crisis deepens
- In Reports
- 04:25 PM, Sep 13, 2024
- Myind Staff
India is prepared to extend emergency financial assistance to the Maldives, as the island nation faces the risk of defaulting on its Islamic bonds, Sukuks, according to sources familiar with the situation.
The Maldives can immediately tap into $400 million under the Reserve Bank of India’s (RBI) currency swap program, which is available to regional countries, Indian officials revealed. The country also has the option of seeking long-term loans through an $800 million line of credit extended by India in 2019.
While the Maldives has not officially requested assistance, the matter is expected to be discussed during Maldivian President Mohamed Muizzu’s forthcoming visit to India, the sources said. This emergency funding could help the Maldives manage its external debt payments, which are due next month. The government recently reaffirmed its commitment to meet its debt obligations, resulting in a recovery of its dollar-denominated Sukuks from a record low.
India’s Ministry of External Affairs declined to comment on the matter, and neither the Reserve Bank of India nor the Maldives government and Maldives Monetary Authority responded to requests for comment.
The Maldives is facing a $25 million payment on approximately $500 million of outstanding Sukuk debt in October, as per data compiled by Bloomberg. At the end of last month, the Maldives Monetary Authority stated that it is working on finalising a $400 million currency swap agreement with India.
India’s readiness to assist comes despite President Muizzu’s anti-India stance during his election campaign, where he advocated for closer ties with China, the largest lender to the Maldives. Both India and China are actively competing for influence in the region.
Tourism-dependent Maldives has accumulated significant debt over the years, while its foreign exchange reserves have been declining. According to the Observer Research Foundation, the country’s debt stood at 110% of its gross domestic product (GDP) as of March 2024. As of August, reserves amounted to $437 million, enough to cover only about one and a half months of imports. Moody’s Ratings highlighted that this amount is “significantly below” the Maldives’ external debt service obligations of $600-700 million in 2025 and over $1 billion in 2026. The ratings agency recently downgraded the Maldives further into junk territory, citing increasing default risks.
The Maldives' financial troubles were exacerbated last year by a diplomatic rift with India, leading to a boycott of the island nation by Indian tourists, one of its key sources of revenue.
Under the RBI’s currency swap window, South Asian Association for Regional Cooperation (SAARC) countries can draw on up to $2 billion in foreign currency to address balance of payments crises. In addition, India introduced a 250-billion-rupee ($3 billion) facility earlier this year to provide backstop funding for up to three years.
Image source: Economic Times
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