India’s government is ready to offer the Maldives emergency financial support to help ease the island nation’s financial woes as risks of the first sukuk default loom, people familiar with the matter said.
The Maldives can immediately tap $400 million available under the Reserve Bank of India’s currency swap program that’s open to regional countries, Indian officials said, asking not to be identified before a final decision is made. The country can also seek long-term loans under a $800 million line of credit extended to the government in 2019, the people said.
It’s unclear if the Maldives government has officially asked for India’s help yet. However, the matter is likely to be discussed during President Mohamed Muizzu’s visit to India in coming weeks, the people said.
The emergency funding would help the Maldives meet its external debt payments coming due next month as investors worry over the world’s first Islamic bond default. The government this week pledged to meet its debt obligations, helping its dollar-denominated sukuks recover from a record low.
India’s Ministry of External Affairs declined to comment when contacted for further information. The RBI, the Maldives government and the Maldives Monetary Authority didn’t immediately respond to emails seeking comment.
The Maldives faces a $25 million payment on its roughly $500 million of outstanding sukuk debt in October, according to data compiled by Bloomberg. The Maldives Monetary Authority said in a statement at the end of last month that it is working on signing an agreement for a $400 million currency swap arrangement with India.
India’s willingness to help Maldives comes despite Muizzu coming to power last year on an anti-India platform and a pledge to foster stronger ties with China, the biggest lender to the Maldives. Both India and China are vying for influence in the region.
Tourism-dependent Maldives has racked up significant debts over the years, while its foreign exchange reserves have slumped. As of March 2024, the country’s debt stood at 110% of gross domestic product, according to the Observer Research Foundation, a New Delhi-based think tank.
Reserves amounted to $437 million at the end of August, sufficient to cover only around one and a half months of imports, according to Moody’s Ratings, and “significantly below” the government’s external debt service of about $600-700 million in 2025 and more than $1 billion in 2026. Moody’s downgraded the nation’s rating further into junk territory this month, citing default risks.
The economic crisis in the Maldives worsened last year following a diplomatic spat between the island nation and India, prompting Indian holidaymakers to boycott the country, reducing a key source of income.
Under the RBI’s currency swap window, countries from the South Asian Association for Regional Cooperation, or SAARC, can draw dollars or euros from an overall amount of $2 billion to avert a balance of payment crisis. The RBI also started a rupee facility of 250 billion rupees ($3 billion) this year to provide backstop funding for a maximum three years.
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