India Helps Maldives: $400 Million Boosts Economy
India’s Support Strengthens Maldives’ Financial Stability
India has welcomed the recent improvement in the Maldives’ foreign exchange (FX) reserves. A significant $400 million currency swap between the Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA) has greatly helped ease the island nation’s financial pressures.
Key Points to Note
- The Indian High Commission in Male stated that the increase in the Maldives’ FX reserves was largely due to the $400 million currency swap.
- This currency swap has helped reduce the Maldives’ immediate financial strains.
- Fitch Ratings has recognized India’s crucial support in boosting the Maldives’ reserves.
Fitch Ratings’ Insights
Fitch Ratings has confirmed the Maldives’ long-term foreign-currency issuer default rating at ‘CC’. They have highlighted several key factors contributing to the reserve buildup:
- Strong earnings from tourism
- The introduction of a new Foreign Currency Act
- Financial aid from India
Current Challenges
Despite the improved FX reserves, the Maldives continues to face significant fiscal and external challenges. Fitch projects the country’s fiscal deficit to widen to 14.5% of GDP in 2025, up from 14% in 2024. This increase is driven by high recurring spending, particularly rising public sector wages, and delays in implementing reforms.
India’s Continued Support
India’s currency swap support to the Maldives is part of a broader effort to assist its maritime neighbor. This swap arrangement, extended under the SAARC framework, has been used before to stabilize short-term dollar liquidity in the region.
India-Maldives Relations
India’s acknowledgment comes at a time of evolving India-Maldives relations. Economic cooperation remains a cornerstone despite political tensions. The currency swap arrangement underscores India’s commitment to supporting the Maldives’ economy.
