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India has announced a $760 million bailout package for the Maldives after the cash-strapped Indian Ocean archipelago turned to New Delhi to avert a sovereign debt default despite the country’s president’s efforts to towards China.
India’s central bank said on Monday it had agreed to a currency swap worth $400 million and Rs 30 billion ($357 million) for the currency. Maldivesa move that reinforces New Delhi’s central role in supporting the country’s economy.
The swap was announced during a meeting in New Delhi between Indian Prime Minister Narendra Modi and Mohamed Muizzu, who was elected president of Maldives last year on the “India Out” platform.
Muizzi’s campaign capitalized on resentment in the Maldives, a Muslim-majority country of just over half a million people, toward its vast northern neighbor. But in written comments released through his office on Monday, Muizzu described India is “our closest neighbor, with whom we share deep historical, cultural and economic ties”.
“India’s closeness and long-standing support have played a pivotal role in the development and stability of the Maldives,” he said.
The Maldives’ net or available foreign exchange reserves fell to about $36 million in September, the country’s monetary authority said on Monday, underscoring the depth of the crisis to which the rufiyaa currency is pegged. price in dollars.
Prime Minister Modi’s office said after meeting Muizzu that the swaps would be “a tool to help address the ongoing financial challenges facing the Maldives”.
India has transferred more than $100 million in short-term loans to the Maldives this year, allowing the country make interest payments this month on a $500 million Islamic sukuk that matures next year.
Investors are worried that the Maldives will be the first country to default on sukuk, a form of debt that is subject to strict Islamic rules on interest rates.
This year Muizzu told India withdrew his small army from the archipelago, a force mainly helps with medical evacuations and maritime surveillance.
Muizzu also warned India by making one of his first foreign visits as president to New Delhi’s biggest regional rival, China. However, Maldives and India reconciled and civilian personnel replaced soldiers.
Muizzu said the Maldives has also “built a strong relationship with China,” which he described as “one of our leading development partners,” including through projects under the Beijing’s flagship global infrastructure, the Belt and Road Initiative.
Last month, state-owned State Bank of India agreed to lend Maldives $50 million, days before the country faces bond interest payments of about $25 million on sukuk.
“With its ambition to become a cyber security provider in the Indian Ocean, there is no way India can reject the Maldives”.
“There is also a greater awareness of India’s actual role in the Maldives, including a sizable humanitarian role – something that no other power can replicate,” Bagchi said.
Maldives’ foreign exchange reserves fell to critically low levels after the country’s tourism economy was hit by Covid-19 travel restrictions and debt soared due to high spending on infrastructure projects floors and imports.
The country’s sukuk due in 2026 plummeted to trade at 70 cents to the dollar last month as investors worried about a possible default on the sovereign debt. They rose 0.4% to 80 cents on the dollar following news of the relief package Monday.
Wary of Chinese influence in its backyard, India has found a way support neighboring countries in the region that are facing economic difficulties. In 2022, New Delhi provided nearly $4 billion in loans and grants to supply fuel, medicine and other food to Sri Lanka after the country suffered a crippling liquidity crisis.
