Maldives abandons India-Out to save its economy

Maldives President Mohamed Muizzu's state visit to India last month involved a visible effort fix the diplomatic relationship. New Delhi more than welcomed this rapprochement and signed a series of agreements with Male. India-Maldives relations elevated to Comprehensive Economic and Maritime Security Partnership, with ambitious vision document attached.

Muizzu's visit stood in stark contrast to the sentiment that accompanied his rise to power. He took office last year following a politically charged term. India-Out election campaign. Upon his victory, he deleted of the country, the minimal Indian military presence (in place mainly to help Male exploit Indian defense platforms) and revised and abandoned important strategic agreements with India. At the same time, Male sign a defense cooperation agreement with Beijing.

So what explains Muizzus Diplomatic turnaround? James Carville, the famous American political campaign strategist, would have understood this well. It's the economy, stupid.

With a GDP/debt ratio of 110%, the Maldives has not yet recovered from the crisis. economic disruption caused by Covid-19. Most of its foreign debt is owed to China ($1.37 billion out of $3.4 billion), which has been widely blamed (again) for its debt trap diplomacy.

In September, Moody's and Fitch downgraded Maldives' credit rating and said its foreign exchange reserves were significantly lower than its external debt servicing needs. In fact, at $440 million (at the end of August), the Maldives barely had enough to cover six weeks of crucial imports. Investors fears that the archipelago would become the first country in the world to default on an Islamic sukuk, a bond that follows Islamic restrictions against traditional interest payments.

Just days before the maturity of a sukuk coupon, New Delhi decided to bail out Malé and the State Bank of India. Lent $50 million in emergency assistance upon request.

New Delhi can now push for a comprehensive recovery and expansion of maritime security ties with Male.

In turn, Male has significantly softened his anti-Indian rhetoric. Before his visit to India last month, Muizzu spoke to the BBC, ruled out support from the International Monetary Fund and declaredIndia is fully aware of its fiscal situation and, as one of our largest development partners, will always be ready to ease our burden, a far cry from the earlier (tacit) characterization of India as a A bully. Moreover, six days before the visit, the two deputy ministers in his cabinet, who had insulted Modi on X and sparked a diplomatic storm in January, were effectively fired (they resigned).

So it's no surprise that Male got what he wanted and needed. Species. Among the agreements signed by Muizzu in India are two bilateral currency swap agreements amounting to a $760 million bailout.

For India, the bilateral reset came as a relief amid a series of worrying issues. reverse in the India district, and New Delhi can now use its newly reestablished influence over Male to regain lost influence and intensify bilateral cooperation. New infrastructure projects have already been spearand Indian Prime Minister Narendra Modi accepted an invitation to travel to the island nation for a state visit in 2025. In the meantime, India will continue to provide assistance to the project. Greater Male Connectivity Projectthe largest ever infrastructure project in the country, financed by a line of credit through the Exim Bank of India, which now includes a commercial port at Thilafushi to ease congestion in Port Male.

For its part, Muizzu has recently taken measures to introduce India has chosen United Payments Interface in the Maldives and discussed a potential FTA with Modi. Regardless, the possibility of easier and cheaper trade in local currencies (with India's line of credit) is clearly in human interest.

Importantly, New Delhi can now push for a comprehensive recovery and expansion of maritime security ties with Male. Strategic importance Joint Hydrographic Survey Agreementthat the Muizzus administration abandoned, and the UTF Coast Guard Port Projectwhich was suspended, will probably make a return. However, Indian policymakers must tread carefully and ensure that such measures do not engender the kind of public resentment that fueled the India-Out campaign. For example, the return of Indian security personnel to the island remains politically unfeasible.

Likewise, even if Muizzu has sufficient political capital (his party swept away parliamentary elections this year) and the time it takes to withstand criticism over Males India's policy reversal, its willingness or ability to respond to Indian demands and security concerns will be limited.

For example, an obvious concern for New Delhi is greater maritime security cooperation between Male and Beijing. China's naval presence in the Indian Ocean continues to grow, and earlier this year a Chinese research vessel, the Xiang Yang Hong, spent considerable time in port and around the Maldives. Indian naval officers believe these ships collect hydrographic and sensitive seabed data, a precursor to the PLA Navy's planned submarine deployments.

New Delhi will likely be frustrated in its attempts to limit the defense partnership between Male and Beijing, not only because of the president's ideological preference, but also because Male has an equal, if not greater, imperative to engage Beijing in debt restructuring.

Meanwhile, Muizzu, reassured by India and China, can remain fiscally complacent and pursue his ambitious (expensive) development plans at the expense of economic sovereignty. In doing so, the archipelago could become even more vulnerable to external debt and increased geopolitical competition, even as the country oscillates and continues to pit India and China against each other with a governance model that is too familiar in South Asia today.