India is reportedly preparing to extend financial support to the Maldives as the island nation faces its first potential sukuk default.
The Maldives, according to a Bloomberg report, could immediately access $400 million under the Reserve Bank of India's (RBI) currency swap program, while additional long-term loans may be sought under a $800 million line of credit extended in 2019.
Though the Maldivian government has not yet formally requested India's help, discussions are reportedly expected during President Mohamed Muizzu's upcoming visit to India.
The potential aid would assist the Maldives in meeting external debt payments due next month, particularly amid growing concerns of a possible default on its sukuk, an Islamic bond.
The Maldivian government recently pledged to meet its obligations, which helped boost the sukuk’s value from record lows.
Bloomberg reported that the Maldives faces a $25 million payment in October, part of its $500 million sukuk debt. The Maldives Monetary Authority has confirmed that it is in discussions for a $400 million currency swap with India, but India’s Ministry of External Affairs and other relevant bodies have not commented on the matter.
BT could not independently verify these claims.
The economic challenges faced by the Maldives have worsened in recent years. The country’s debt has ballooned to 110% of its GDP as of March 2024, according to the Observer Research Foundation, while foreign reserves have dwindled. At the end of August, the Maldives held $437 million in reserves, only enough to cover around six weeks of imports. With significant external debt repayments due in 2025 and 2026, rating agency Moody’s recently downgraded the country’s credit rating further into junk status, citing a heightened risk of default.
Despite Muizzu’s election on an anti-India platform and a pledge to strengthen ties with China, India remains prepared to support the Maldives. The rivalry between India and China for regional influence is ongoing, as seen in China’s recent agreement to expand the use of local currencies with the Maldives. Meanwhile, the Maldives continues to grapple with its tourism-dependent economy, which suffered after an Indian tourist boycott last year following diplomatic tensions.