The visit has been mutually beneficial, especially with the signing/renewal of MoUs, adapting the Comprehensive Economic and Maritime Security Partnership vision, and India’s offer of financial assistance.
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A year after being elected President of the Maldives, Mohamed Muizzu is on his first official state visit to India. From his early days, the Muizzu administration was keen on reducing dependence on India, diversifying relations with others, and expanding cooperation with China. Muizzu also went on to call India a “bully” and for long defended his party cadres who hurled racist remarks against India and Prime Minister Narendra Modi. In this regard, the visit aims to infuse some fresh energy into bilateral relations. It has offered mutual benefits for both countries, with the Maldives receiving much-needed financial relief and India making further inroads into the country. This visit will likely pave the way for more cooperation between both nations. That said, for all pragmatic purposes, the Maldives will continue to balance India and China.
When President Muizzu got elected to power after his party’s prolonged “India Out” campaign, his administration had hoped that China would offer new loans, restructure existing ones, and help fulfil their campaign promises through funds and investments. In January, when Muizzu visited China for his first state visit, he signed 20 MoUs and upgraded the relations to a comprehensive strategic partnership. He also joined the Global Security Initiative and agreed to revive the free trade agreement (FTA) and the Belt and Road Initiative projects. In the following weeks, he signed a defence pact and permitted the docking of a spy vessel in Malé. He also let China establish an agricultural zone on the Uthuru Thila Falhu-Island where India is building a naval harbour, and also contracted a Chinese firm to upgrade the Kadhdhoo airport where Indian technicians are operating a helicopter.
Structural issues, maturing debts from private creditors and China, Muizzu’s initial investment promises, and subsequent political appointments exacerbated the crisis.
The reason, apart from ideological leanings, was that the Maldives’ economy was already in a bad state. Even in his initial meetings, Muizzu had requested Indian and Chinese envoys to restructure debts. Structural issues, maturing debts from private creditors and China, Muizzu’s initial investment promises, and subsequent political appointments exacerbated the crisis. As of March, the Maldives debt-to-GDP ratio was 110%, and as of September the foreign reserves were $360 million (worth a month’s import). But despite economic hardships and the continuous wooing of China, Beijing is hesitant to offer new loans and slow in debt restructuring. Today, the Maldives owes around $1.1 billion (of $8 billion total debt) to China.
On the other hand, India’s response and accommodative policy like high-level engagements, replacing military personnel with technicians, increased development assistance, and revised export quotas, motivated Malé to approach India again. The visit of Moosa Zameer, the then Maldivian foreign minister, in May indicated the rethink. The momentum was sustained with back-to-back high-level visits, followed up by India rolling over two treasury bills worth $100 million. India also offered over $29 million in loans in early 2024, despite difficulties in the relationship. Furthermore, with 65% of Indian loans yet to be disbursed the Maldives saw engagement with India as an imperative, paving the way for the ongoing visit.
The visit has been mutually beneficial, especially with the signing/renewal of MoUs, adapting the Comprehensive Economic and Maritime Security Partnership vision, and India’s offer of financial assistance. Directed by the vision document, both nations will increase political engagements, development partnerships, capacity-building, people-to-people relations, business engagements, and digital connectivity.
The possibility of trading in local currency with India’s credit line and the FTA will make trade easier and cheaper for the Maldives.
For the economically struggling Maldives, India’s currency swap of $750 million ($400 million and Rs 30 billion) is a huge relief. On the Maldives’ request, India has also agreed to negotiate the FTA and discuss trading in local currencies. With India being one of the top sources of exports to the Maldives, the FTA is likely to benefit the latter the most. Furthermore, the possibility of trading in local currency with India’s credit line and the FTA will make trade easier and cheaper for the Maldives. It will also reduce the burden of generating and using foreign reserves. For India, the visit has created additional leverage. It has managed to retrieve several initiatives, sectors, and projects that Muizzu wanted to use to move away from India. For instance, India will be helping the Maldives with health cooperation, defence platforms, surveillance capacities, information-sharing, and hydrographic surveying. Similarly, India has expressed interest in developing Thilafushi port, investing in the economic gateway project, and extending the Greater Malé Connectivity bridge. India will also now have a consulate in Addu — the southernmost atoll of the Maldives — which will be crucial for development and strategic purposes. This initiative was also highly politicised by Muizzu’s party when in opposition.
In this regard, the visit has put India-Maldives relations on the right track. India’s timely assistance has generated an image of being a first responder and a reliant partner, and this will compel Muizzu to be more sensitive to India’s concerns and interests, thereby paving the way for more cooperation. That said, the Maldives will continue to exercise agency to further its security, strategic, and economic interests. It realises that China has a potential to invest, and their restructuring will be crucial for the Maldives to escape a crisis. As a result, realpolitik and agency will be at the heart of the Maldives’ foreign policy — and as India-China competition intensifies, it will explore ways to maximise its benefits and interests from both countries.
This commentary originally appeared in Financial Express.
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