Maldives Falls Back on India's Help to Avoid the IMF Trap

The recalibration in Maldivian President Mohamed Muizzu's stance towards India is largely due to economic challenges facing the Maldives and the country's wariness to approach the International Monetary Fund (IMF), two experts have told Sputnik India.

"If we see what happened in Sri Lanka, the decision by the previous government to approach the IMF for a bailout fed into discontent against Ranil Wickremesinghe and ultimately led to his defeat. The stringent conditions imposed by the IMF, which primarily include liberalisation and cutting down on social welfare, have been known to be very unpopular," explained Dr Anand Kumar, an Associate Fellow at the Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA).

Kumar noted Muizzu's media comment in the lead-up to his visit, wherein the Maldivian leader mentioned that his government wouldn't approach the IMF to repay its foreign debt to the tune of nearly $3.4 billion, with most of it owed to China and India. According to reports, the Maldives' foreign exchange reserves have hit a low of $440 million, just enough to sustain around 90 days of imports.

"The IMF terms may not always be bad, but bring misery to the people in the near future. For that reason, most of the countries, including our own neighbours, approach the IMF only under dire conditions," Kumar stated, adding that Maldives narrowly avoided a default on its semi-annual payments of the Sukuk bond largely because of the emergency loan worth $50 million extended by the government-backed State Bank of India (SBI).

Further, he reckoned that there was a "growing realisation" in the Muizzu administration that India, being the largest economy in South Asia, was well-positioned to help Maldives ride out the economic crisis. Muizzu rose to power last November on an 'India Out' campaign. After assuming office, Muizzu carried out his election pledge of making around 80 Indian military personnel operating three India-donated aviation platforms leave the country and be replaced by civilian experts.

As part of India's Neighbourhood First policy and SAGAR (Security and Growth for All in the Region) doctrine, New Delhi has always striven to be the "first responder" to any contingency in the Maldives, PM Modi asserted at the joint press conference.

Modi noted that the SBI had rolled over nearly $100 million in Treasury bills subscribed to by Maldives this year (in May and September). Further, he also announced a "Vision for Comprehensive Economic and Maritime Security Partnership”, the commencement of free trade agreement (FTA) talks and plans to introduce UPI in the Maldives to further bolster economic linkages.

Maldives had made a number of requests in view of the upcoming bond payments, Indian Foreign Secretary Vikram Misri said, addressing a press conference detailing the outcomes of the Modi-Muizzu talks.

"We need to study these as we go forward and see what the situation is in coming weeks and months as we work together with our colleagues in the Maldives to respond to these," Misri underlined.

In recent months, major global credit rating agencies have downgraded Maldives’ rankings due to growing risk of debt default in view of low foreign exchange reserves. In September, Moody’s predicted that the reserves would remain much below the external debt servicing obligations in 2025 and 2026. In February, the IMF warned the Maldives of a debt distress due to high level of borrowing.

Maldives' economic hardship was forcing Muizzu's hand, Commodore Seshadri Vasan (Retd), the Director General of Chennai Centre for Chinese Studies (C3S) and an Indian Navy veteran, told Sputnik India, noting that the apparent thaw was visible when Muizzu visited New Delhi to attend the swearing-in of Prime Minister Modi in June.

"Muizzu has realised that he can't limit himself strategically, in view of the longstanding relations Maldives has had with India. As indicated by his recent statements, Muizzu will engage with both India and China in line with Maldivian interests and won't keep any one country out at the expense of another," the Indian Navy veteran said.

Maldives' economic, development and security priorities, which include the need to maintain security in its exclusive economic zone (EEZ), converged with India's Neighbourhood First and SAGAR policies, he remarked.

India is an attractive option for the smaller countries in its neighbourhood because it doesn't attach strings to economic aid or assistance, as seen in the case of Sri Lanka: India's assistance of nearly $4 billion outmatched that of the IMF, which in turn posed much stringent conditions on its loan, Vasan stated.

"India has always sought to integrate the South Asian nations in the larger scheme of Indian Ocean security and economy. There is an increased sense of confidence in India's benign overtures to these countries," he concluded.

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Maldives Turns to India to Avoid IMF Trap