Maldives repays $150 million to India even as economic pressures persist

The Maldives has repaid $150 million to India against emergency financial assistance extended by New Delhi during the island nation’s economic difficulties, clearing the outstanding amount under the $300-million facility even as Male continues to grapple with high debt and pressure on its foreign-exchange position.

The repayment was made on Thursday, according to people familiar with the matter, and followed an earlier payment of $150 million in June. India had provided the $300-million assistance in 2022 as the Maldives faced severe economic pressures in the aftermath of the Covid-19 pandemic, which had dealt a major blow to its tourism-dependent economy.

Loan fully repaid

The assistance had been extended through the State Bank of India under a government-backed arrangement and was intended to provide budgetary support at a time when the Maldives was confronting declining revenues, rising expenditure and mounting external obligations.

With the latest $150-million payment, Male has now repaid the full amount. The transaction assumes significance because it comes at a time when the Maldives continues to face concerns over its debt burden and foreign-exchange reserves.

Tourism remains the backbone of the Maldivian economy and its principal source of foreign currency. While visitor arrivals and tourism receipts have recovered strongly from the pandemic-era disruption, the country continues to face substantial external debt servicing requirements alongside significant infrastructure spending.

The repayment is therefore being viewed as part of Male’s broader effort to demonstrate its ability to meet external financial commitments while managing a difficult fiscal position.

India ties improve

The payment also comes against the backdrop of a marked improvement in relations between India and the Maldives after a period of diplomatic strain following President Mohamed Muizzu’s election in 2023.

Relations had initially deteriorated over Muizzu’s demand for the withdrawal of Indian military personnel stationed in the Maldives to operate aviation platforms used for humanitarian and medical evacuation purposes. The personnel were subsequently replaced by Indian civilian technical staff.

Since then, both governments have worked to rebuild the relationship through high-level visits, economic cooperation and development assistance. Muizzu’s visit to India and subsequent engagements between the two sides helped reset ties, with economic and maritime cooperation returning to the centre of the bilateral relationship.

India has continued to support development projects in the Maldives and has provided financial assistance at critical moments, including through currency swap arrangements and the rollover of financial obligations.

Debt remains challenge

Despite the repayment, the Maldives’ broader economic vulnerabilities have not disappeared. The country faces significant public and publicly guaranteed debt, while large external repayments over the coming years continue to put pressure on government finances and foreign-exchange reserves.

The Muizzu government has announced measures aimed at fiscal consolidation, including expenditure controls and efforts to increase revenue. It has also sought external financing and investment while attempting to manage debt obligations without disrupting development spending.

The Maldives’ reliance on imports for essential goods, including food and fuel, makes adequate foreign-exchange reserves particularly important. Any sustained pressure on reserves can increase the cost of servicing external debt while making the economy more vulnerable to global shocks.

Strategic partnership

For India, financial assistance to the Maldives forms part of a broader development and neighbourhood policy towards the strategically located Indian Ocean nation.

The Maldives sits close to important international shipping routes and occupies a significant position in India’s maritime security calculations. New Delhi has supported infrastructure, housing, connectivity, healthcare and community development projects across the archipelago.

The repayment of the $300-million assistance closes one financial commitment between the two countries at a time when their relationship has moved away from the tensions of recent years towards renewed economic engagement.

For Male, however, the larger challenge remains managing its substantial external liabilities while maintaining growth in an economy heavily dependent on tourism and imports.