India Pledges $400 Million Aid, Currency Swap to Help Maldives Amid Economic Crisis

Indian Prime Minister Narendra Modi and Maldivian President Mohamed Muizzu held bilateral talks on Monday, during which India pledged to strengthen strategic cooperation with the island nation and approved a financial assistance package as the Maldives grapples with an economic crisis.

India agreed to a $400 million aid package and a 30 billion rupee ($357.35 million) currency swap agreement, Modi announced. He emphasized India’s commitment to providing extensive support to the Maldives to aid its economic recovery and infrastructure development.

"India will continue to work alongside the Maldives for stability and progress in the Indian Ocean region," Modi said following the conclusion of the talks. The two leaders also announced that negotiations for a free trade agreement between the two countries will commence soon.

The assistance comes at a crucial time for the Maldives, as the nation faces mounting concerns about a potential default on its Islamic sovereign debt. Recent months have seen an improvement in sentiment toward the Maldivian economy after both China and India, which vie for strategic influence in the region, extended new lines of financial support to the country.

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Last month, India provided emergency financial assistance by subscribing to a $50 million treasury bill from the Maldives at Muizzu's request. This followed a commitment from China to bolster trade and investment in the Indian Ocean nation.

Much of the Maldives’ foreign debt is owed to China and India, with outstanding loans totaling $1.37 billion and $124 million, respectively, according to World Bank data. The economic challenges in the Maldives were exacerbated by the COVID-19 pandemic, which severely impacted its tourism-dependent economy.

Diplomatic relations between India and the Maldives faced strain earlier this year when Muizzu, following his election win in April, called for the withdrawal of 80 Indian defense personnel stationed in the Maldives, as part of his "India Out" campaign. However, the two nations have since engaged in diplomatic efforts to restore their ties.

"India is a key partner in the socio-economic and infrastructure development of the Maldives and has stood by us during our times of need," President Muizzu acknowledged during the state visit, which marks his first since assuming office.

The visit, which is part of Muizzu’s five-day state trip to India, reflects ongoing efforts by both nations to bolster their partnership in economic, security, and regional stability matters in the Indian Ocean.