By P.K.Balachandran/Daily News
Colombo February 5: As the Maldives is again facing a looming economic crisis, India last Friday said it is in close touch with the island nation in regard to the developing situation there. The economy of the Maldives is reeling under increasing pressure, largely because of debt accumulated over the years across several Presidencies.
“We remain in close touch with Maldivian authorities on the situation facing them,” the Ministry of External Affairs spokesperson Randhir Jaiswal said last week. India is anxious that the economic situation should not make the Mohamed Muizzu government veer towards China which is waiting in the wings to enter Maldives from which was driven out in 2018 after the defeat of its protégé, Abdulla Yameen, at the hands of the pro-India Ibrahim Solih.
Jaiswal also referred to some recent agreements signed by the Maldivian government, saying they are likely to result in revenue loss and that it is a matter of concern. “We would, obviously, need to take that into account while framing our own policies,” he said.
On December 30, Minister of Commerce Wang Wentao held a video meeting with Mohamed Saeed, Minister of Economic Development & Trade of the Maldives. The two sides jointly announced that the China-Maldives FTA will enter into force on January 1, 2025. China International Trade Representative and Vice Minister of Commerce Wang Shouwen participated the meeting.
Most of the industrial products such as ships, electrical equipment, furniture and agricultural products such as vegetables and fruits exported by China to the Maldives will benefit from the entry into force of the agreement. Most of the aquatic products originating in the Maldives exported to China will also enjoy zero tariff treatment. The taking effect of the agreement will provide a solid institutional guarantee for improving trade and investment liberalization and facilitation between the two countries, effectively promote greater development of bilateral economic and trade relations, and continuously enhance the well-being of enterprises and people of the two countries, the Chinese readout said.
Critics argue that the FTA primarily benefits Chinese exporters by significantly reducing tariffs on Chinese goods entering the Maldivian market, while offering little reciprocal access for Maldivian exports due to the limited range of goods the Maldives can export, primarily fish products. With the Maldives already having significant debt to China, the FTA could further exacerbate this dependence, making the Maldivian economy more vulnerable to economic fluctuations in China.
The agreement could lead to a significant decrease in import duties collected by the Maldivian government, impacting its revenue streams. India, a major trading partner of the Maldives, has concerns that the FTA will allow cheaper Chinese goods to flood the Maldivian market, potentially harming Indian exports, particularly in the textile and apparel sector. Finally, the lack of transparency and public debate is worrying. Some critics argue that the FTA was rushed through without adequate public discussion or consideration of potential negative impact.
World Bank Report
The Word Bank in its report on the Maldives on October 10 last year said that the country faces heightened external and fiscal vulnerabilities that require urgent implementation of comprehensive economic reforms.
Food prices rose by 6.7% in 2024 compared to 2023. Increasing public debt and high fiscal spending, particularly for public sector investments and subsidies, were worrying. Although the reported fiscal deficit dropped in the first quarter of 2024, payment delays were affecting major sectors such as healthcare and construction.
Foreign exchange reserves were low, enough to cover only 1.5 month of imports. Reserves fell from US$ 590.5 million at the end of 2023 to US$ 443.9 million in August 2024. There was pressure due to high debt repayments, with total public debt rising to 116.5% of GDP in the first quarter of 2024, up from 110.4 percent during the same period in 2023.
Comprehensive economic reforms are urgently needed to address fiscal and external imbalances, build investor confidence, and reduce debt over the medium-term ,the report said.
The government proposed a fiscal reform plan in February 2024, but only limited progress was made in implementation. Urgent actions were needed to reduce spending. This includes reducing public investments, phasing out subsidies, improving health spending efficiency, and reforming State Owned Enterprises (SOE) to reduce the state’s footprint in the economy.
In October 2024 India agreed to extend hundreds of millions of dollars in financial support to the Maldives to help strengthen its struggling economy. The deal was announced after President Mohammed Muizzu held talks with Prime Minister Narendra Modi during his five-day visit to India. The support included a US$ 400 million in a currency swap deal and an additional INR 30 billion (US$ 357 million) in another swap agreement which will allow companies to do business in local currencies rather than in US dollars. Muizzu and Modi even agreed to discuss an FTA with India.
Muizzu had earlier dallying with China but China was dragging its feet perhaps insisting that Muizzu should operationalize the FTA which was unpopular in the Maldives.Evenually, Mizzu loosened his ties with China and went into India’s waiting arms. He abandoned his “India-Out” campaign opting for an undeclared “India-In” policy which has cushioned him against severe economic adversity.
“India is fully cognisant of our fiscal situation, and as one of our biggest development partners, will always be ready to ease our burden, find better alternatives and solutions to the challenges we face,” Muizzu said.
However, the dalliance with China was not wholly abandoned. In February 2024, Muizzu allowed a Chinese research ship to dock in the Maldives, much to Delhi’s displeasure. In India’s view it was on a mission to collect data which could be used by Chinese submarines. The fact is the Maldives is indebted to China to the tune of US$ 1.37 billion.
Realising that it cannot take Muizzu or any government in Male for granted, India has not allowed any let up in its assistance to the Maldives. In the past, India had always help to the Maldives whenever it had political, economic or other crises and India has been the only country to rush aid. The Maldivians know this even as they try to use China as a check on India’s bid to over-reach some times.
Alarmed by the January 1, FTA with China, India raised its foreign aid allocation to the Maldives in the budget for the fiscal year 2025-26, increasing it from US$ 54.2 million to over US$ 69 million.
million for foreign aid allocations, a slight increase from last year’s around US$564 million.
Earlier this month, Foreign Minister Abdulla Khaleel and Defence Minister Mohamed Ghassan Maumoon made official visits to India, signalling renewed cooperation between the two nations.
The Maldives and India held the first meeting of their High-Level Core Group last Wednesday to advance economic and security cooperation under a framework agreed last year, the Indian Ministry of External Affairs said.Officials from both countries met in Malé to review progress on areas outlined in “A Vision for Comprehensive Economic and Maritime Security Partnership” which was set following President Mohamed Muizzu’s talks with Indian Prime Minister Narendra Modi in October 2024.
Discussions covered a range of issues, including development cooperation, trade, digital financing, health, people-to-people ties, and defence and maritime security, the Ministry said in a statement. The two sides will hold the next meeting in India in April.
President Muizzu is leaving no stone unturned. He sent Foreign Minister Abdulla Khaleel to meets his Saudi counterpart in Riyadh last week. Khaleel expressed appreciation for Saudi Arabia’s “continued support and assistance” in the Maldives’ development and highlighted the “shared Islamic values and common interests” that underpin the partnership between the two countries. The two ministers agreed to “explore further opportunities for cooperation bilaterally and continue to work closely in multilateral forums,” an official statement said.
Pressing Political Problems
Muizzu’s problems are not only economic, he has grave economic problems also due to his inability to bring down the prices and provide an efficient administration. He said to lack administrative experience and the ability to make well-thought out plans. He is expecting India to provide funds but seems to have no clue as to how to use them properly.
The opposition Maldivian Democratic Party (MDP) is highlighting public discontent. It held a rally in Male last Friday. To add to his administrative problems, Muizzu has stoked political issues arising from his political insecurity.
Last year he changed the law for parliament members under which if an MP leaves his party or is forced out, he will lose his seat in parliament. This was meant to prevent defections. Although all parties will gain by it, opposition MPs believe that Muizzu did it to keep his own flock of People’s National Congress (PNC) together and under him.
Muizzu Fired Tourism Minister Ibrahim Faisal because he was under the impression that Faisal’s father and parliament Speaker Abdul Raheem Abdulla was plotting his overthrow with the help of Raheem though Faisal and Raheem Abdulla were members of the PNC. Raheem Abdulla is therefore in a fix. If he takes umbrage and conspires against Muizzu, he might be removed.
Raheem Abdulla was the right hand man of former President Abdulla Yameen and was his campaign manager. Muizzu too was with Yameen in the latter’s Peoples’ Progressive Party of the Maldives (PPM).
Since PPM leader Yameen was in jail on money laundering charges, he could not be the PPM candidate in the 2023 Presidential election. PPM membes then formed the PNC and fought the election with Muizzu as the candidate. His chief lieutenant in the campaign was Abdulla Raheem. But once Muizzu became President, he began to side line both Raheem Abdulla and Yameen.
Raheem is now likely to team up with Yameen who is out of jail and cooling his heels, waiting for an opportunity to stage a comeback. Sources say that Yameen’s bouncing back cannot be ruled out. His USP is an ability to administer efficiently, chalk out clear paths and stick to them unlike Muizzu who is unsteady and impulsive.
Since MPs will lose their seats if they defect, Muizzu is technicall safe. But he is unable to bring relief to the common man, there could be a mass movement as it happened in Sri Lanka in 2022 and Bangladesh in 2024
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