Expert Speak Energy News Monitor
Published on Oct 04, 2022
India is keen on maintaining good relations with the Maldives for the larger common good of the South Asian region
India-Maldives ties: Extending additional credit lines

During his maiden visit to Maldives last weekend, Foreign Secretary Vinay Mohan Kwatra said that ‘The Maldives is one of the most important regional partners, and India would continue to support numerous developmental projects in the country’. True to form, the two nations formalised Prime Minister Narendra Modi’s commitment to Solih in New Delhi in August for an additional US$ 100-million credit line for Male to ‘ease and facilitate numerous infrastructure projects’.

According to the Foreign Ministry of Maldives, Kwatra’s visit was ‘productive and successful’. The new assistance, the ministry clarified, was an extension of the US$ 800-million credit line offered in 2019 and ‘is a testament to the unwavering support and commitment of the Government of India to improving the socio-economic well-being and public welfare of Maldives’.

President Solih too reminisced about the close bilateral ties and highlighted that the relationship had seen unprecedented growth in recent years. Foreign Minister Abdulla Shahid, while addressing the India@75 ‘Showcasing India-UN Partnership’ event, recalled how India has been a ‘valuable partner in economic development and recovery’.

A positive and successful visit

In Malé, Foreign Secretary Kwatra also held discussions with Finance Minister,  Ibrahim Ameer; Economic Development Minister, Fayyaz Ismail; and also with his counterpart, Ahmed Latheef, centring mostly on bilateral development cooperation. He also paid a courtesy call on Parliament Speaker, Mohammed Nasheed.

Secretary Kwatra also held discussions with Defence Minister Mariya Didi. At a ceremony held at the Defence Ministry, the former handed over 24 utility vehicles to the Maldives National Defence Force (MNDF). Separately, India also handed over a speed boat to the Maldives Correctional Service (MCS), or prison administration, under the US$ 106-million rant Assistance scheme signed in March 2019.

Incidentally, ahead of Kwatra’s visit, Indian trader, Mohan Mutha Exports, announced its decision to construct a Military Residential Township with 138 houses for senior officials at Maldives National Defence Force (MNDF) using its own resources that will be reimbursed by the host government upon completion of the project, on the reclaimed Hulhumale Phase-2, the suburban island.

During his stay, Kwatra also visited the site of the ongoing Greater Malé Connectivity Project, the single-largest project in the Maldives, with US$100 million in Indian grants and US$ 400 million in credit.

Contract with people

In a way, India’s stepping up aid to and cooperation with the Maldives may be attributed to the growing Chinese influence and assistance, especially during the preceding presidency of Abdulla Yameen, who is engaged in two legal battles for money laundering that are unconnected to his government’s China’s ties. Recently, Malé City Mayor, Dr Mohamed Muizzu, belonging to Yameen’s PPM-PNC combine attributed improved bilateral relations with China, to increased party-level contacts with the Communist Party of China (CPC). While he was reflecting the unsaid position of the Yameen camp, Muizzu was also seemingly pitching for the combine’s presidential nomination, if Yameen is convicted in the pending case(s), leading to his disqualification from contesting next year’s elections.

Yet, the common perception that India was only responding to the Chinese threat in the Maldives is hardly true. For long, New Delhi had understood that the entire region needs to develop simultaneously for the larger common good and collective human security impinging oftentimes on the traditional security of the region as a whole. The era of economic reforms facilitated funding prospects for India in the post-Cold War neighbourhood and also opened up opportunities in the region as those governments were called upon to address the genuine aspirations of the emerging IT era generation with access to global information and knowledge at their fingertips.

New Delhi had understood that the entire region needs to develop simultaneously for the larger common good and collective human security impinging oftentimes on the traditional security of the region as a whole.

Faster democratisation of South Asia created both the conditions for India to step in with development assistance where sought and also take up the ‘Responsibility to Protect’ (R2P), going beyond the UN definition which was restricted mostly to traditional security. Thus, India’s new-found slogan of being the ‘Net Security Provider’ in South Asia included human security as much as traditional security, which also included international terrorism as among the key concerns of the region.

The Maldives fitted the bill along with other neighbours, including adversarial Pakistan. Yet, only select nations such as Bangladesh and Bhutan, and select governments in Sri Lanka and Maldives, sought and obtained Indian assistance. The Rajapaksas regime in Sri Lanka and Yameen regime in the Maldives went out of the way to court China and made China’s rivalry into one of their own viz India.

High recurring expenditure

Yet, concerns remain, about the management of the domestic economy, as Maldives inches closer to an economic crisis similar to Sri Lanka. Despite public commitments that would state otherwise, the Solih government has not been able to tighten what even well-meaning critics describe as ‘fiscal profligacy’, though unavoidable owing to the post-COVID recovery compulsions.

According to a September report of the Maldivian Finance Ministry, government expenses totalled MVR 26.5 billion in annual terms while revenues, inclusive of grants, reached MVR 19.6 billion, leaving behind a deficit of MVR 6.9 billion. Unlike what was believed, 74 percent of the budgetary amount went towards recurring expenses while only the remaining 26 percent was spent on creating capital.

Despite public commitments that would state otherwise, the Solih government has not been able to tighten what even well-meaning critics describe as ‘fiscal profligacy’, though unavoidable owing to the post-COVID recovery compulsions.

Out of the recurring expenditure, a whopping MVR 12.1 billion was spent on administrative and operational expenses. Another MVR 7.3 billion went towards salaries, wages and pensions of public sector employees. On capital expenditure, MVR 3.8 billion went towards infrastructure assets; MVR 1.3 billion on development projects and investment outlays; MVR 1.2 billion on land and buildings.

As may be noted, 73 percent of the state earnings came from tax revenue and the remaining 27 percent came from non-tax sources. This is a clear indication of the inherent limitations of taxing the people further. This is particularly so in an election year. With the result, the World Bank’s prediction of a fiscal crisis at the end of 2023 rather becomes predictable.

According to the Finance Ministry, the SDF held MVR 1.6 billion by 15 September  2022, but it was printed money, not earned reserves which alone could be used for international repayments, The Maldives Journal said.  The news site also recalled how Moody’s Investors Relations had expressed concern about the way the SDF had been used up, and how it would impact on loan-repayment, when due. The Ministry had promptly contested the suggestion.

Substantial recovery

A clearer picture will emerge when the government comes up with the budget proposal for fiscal 2023, commencing on 1 January. Yet, the silver lining is that both tax and non-tax revenues have improved vastly from the corresponding period in the previous year, standing respectively at MVR 14.4 billion (MVR 9.7 billion) and MVR 5.1 billion (MVR 3.3 billion), feeding the government’s hopes of substantial recovery in the months and years to come.

In particular, the government is hopeful of a near-full recovery in the tourism sector, post-COVID, with Tourism Minister, Dr Abdulla Mausoom, putting the target arrivals for 2023 at 2 million. Travel industry sources expect a 2.4-percent as direct flights from China resume.

Yet, sceptics question President Solih’s more recent claims of creating thousands of new jobs in the COVID-hit tourism sector over the past four years of his government even though the industry opened just a few months after the global lockdown. Opposition parliamentarian Mohamed Saeed has also questioned the government’s hopes of obtaining US$ 3 billion to add 8,000 tourism beds, say, for instance, in a single location like Thiladhunmathi. This is when Solih declared that tourism would improve across the country as his government is taking special interest in improving transportation and connectivity, another perennial problem in the archipelago nation.

Saeed questioned the arithmetic behind the government’s budgeting, arguing that at the past cost of US$ 40 million per resort, 80 resorts of 100 beds each would require massing funding. Without referring to the size and facilities, he also referred to the government obtaining a US$ 132-million credit from India for the Hanimaadhoo Airport project, and claimed that at US$ 18 million per airport project under the Yameen presidency, the loan could fund eight airports.

Avoidable embarrassment

The host government may have also caused avoidable embarrassment during Kwatra’s visit when it levelled terrorism charges against 18 persons arrested for mob disturbances at the UN’s International Yoga Day, co-sponsored by the Maldivian Youth Ministry and the Indian Cultural Centre on 21 June. The list included two religious preachers and one former parliamentarian.

Over the past months, political parties have been careful not to comment on the Yoga Day arrests. Yameen’s PPM, which had protested the arrest of ex-MP Mohamed Ismail, has since urged the authorities to drop the terrorism charges against him.

The Yameen camp, especially sections of the local media identified with the combine, have been making links where none existed. They claimed that President Solih appointed a Cabinet sub-committee to go into the day’s events under India’s pressure. In an unrelated incident, they also said that New Delhi was behind President Solih decreeing protests against all friendly nations after the Yameen combine launched the ‘India Out’ campaign. The party’s appeal against the presidential decree, which is awaiting parliamentary clearance for being enacted into law, is pending before the High Court.

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