India has pledged significant financial assistance to the Maldives to help stabilize its faltering economy, marking a pivotal moment in the relationship between the two South Asian nations that has experienced turbulence in recent times.
The agreement was announced after extensive discussions between Maldives President Mohammed Muizzu and Indian Prime Minister Narendra Modi during the former’s five-day visit to India. The visit comes amid growing concerns over the Maldives’ economic crisis, which has seen its foreign exchange reserves dwindle to dangerous levels.
As part of the package, India will provide a $400 million currency swap arrangement, along with an additional 30 billion rupees (approximately $357 million) in another swap deal. These arrangements will allow Maldivian businesses to conduct trade using local currencies, reducing reliance on the US dollar, according to a report by the BBC.
Resetting Relations After Strained Ties
Muizzu’s visit comes after months of strained relations. Upon his arrival, he received a warm reception, with Modi describing the visit as a "new chapter" in India-Maldives relations. "India will always be there for the progress and prosperity of the people of Maldives," Modi said.
This marks a notable improvement in relations since Muizzu took office in November 2023, a period during which ties had noticeably soured. Muizzu’s decision to visit Turkey and China in the months following his election was perceived as a diplomatic snub to India, breaking from the tradition of newly elected Maldivian leaders making Delhi their first foreign stop.
Economic Crisis Forces Rapprochement
The Maldives, facing the possibility of a debt default, has seen its foreign exchange reserves drop to $440 million—barely enough to cover six weeks of imports. This financial crunch, experts believe, has forced the Muizzu administration to rebuild bridges with India. In a statement, Muizzu acknowledged India’s crucial role in alleviating the crisis, saying that the support package would be "instrumental in addressing foreign exchange issues."
Prior to his meeting with Modi, Muizzu told the BBC that India remains aware of the Maldives' fiscal situation. "India is fully cognizant of our fiscal situation, and as one of our biggest development partners, will always be ready to ease our burden, find better alternatives and solutions to the challenges we face," he said.
Moving Beyond Tensions
Muizzu’s comments during the visit suggest a shift from his earlier policies, which had been interpreted as an attempt to distance the Maldives from India's influence and cultivate closer ties with China. Notably, he did not address his previous anti-India rhetoric directly, but instead stressed the importance of dialogue. "We are confident that any differences can be addressed through open dialogue and mutual understanding," he said.
As part of the renewed diplomatic engagement, India and the Maldives have also agreed to initiate discussions on a free trade agreement, signaling a commitment to deeper economic ties.