India is prepared to offer emergency financial assistance to the Maldives as the island nation faces the risk of defaulting on its sukuk bonds, the people familiar with the matter said
The Maldives has immediate access toUSD 400 million through the Reserve Bank of India’s (RBI) currency swap program, which is available to regional countries. Indian officials noted that the Maldives can also seek long-term loans from an $800 million line of credit extended by India in 2019. These options could help ease the Maldives' financial burden.
Although it's unclear if the Maldives has officially requested India’s assistance, the issue is expected to be discussed during President Mohamed Muizzu’s upcoming visit to India.
The emergency funds could assist the Maldives in meeting its external debt obligations, particularly as concerns grow about the possibility of the world’s first Islamic bond default. The Maldivian government recently reassured investors of its commitment to meet debt payments, which helped boost the value of its dollar-denominated sukuks.
India’s Ministry of External Affairs and the RBI have not commented on the situation, and there has been no immediate response from the Maldivian government or the Maldives Monetary Authority.
The Maldives is facing a $25 million payment in October on its approximately $500 million in sukuk debt. Last month, the Maldives Monetary Authority announced that it was in the process of finalizing a $400 million currency swap agreement with India.
India's offer of support comes despite the fact that Muizzu came into power with promises to reduce Indian influence and strengthen ties with China, the Maldives' largest lender. Both India and China are competing for greater influence in the region.
The Maldives’ reliance on tourism has led to significant debt accumulation over the years. As of March 2024, its debt had reached 110% of its gross domestic product. The country's foreign exchange reserves, which stood at $437 million in August, are only sufficient to cover about one and a half months of imports. This is significantly below the Maldives' external debt service needs, which are expected to be around $600-700 million in 2025 and more than $1 billion in 2026. Moody’s recently downgraded the Maldives’ credit rating further, highlighting the risks of default.
The Maldives' economic situation worsened last year following a diplomatic dispute with India, which led to a decline in Indian tourists, one of the country’s key revenue sources.
Under the RBI’s currency swap window, South Asian Association for Regional Cooperation (SAARC) countries can access up to $2 billion to address balance of payment issues. Additionally, the RBI introduced a rupee facility of 250 billion rupees ($3 billion) this year to provide funding for up to three years.
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