The Indian government is re-evaluating its financial aid to the Maldives following the island nation's decision to implement a free trade agreement (FTA) with China this month, according to The Economic Times.
This development comes just a month after New Delhi announced financial assistance to help the Maldives recover from its economic crisis.
The Maldives-China FTA is anticipated to lead to significant revenue losses for the Maldives, creating a trade imbalance. Estimates suggest the island nation could lose $30–40 million annually in customs fees due to the agreement, The Economic Times reported.
In addition, the Maldives is negotiating a trade agreement with Turkey, which is also expected to result in similar customs revenue losses.
While India has extended immediate financial support, concerns remain over the Maldives' long-term debt sustainability. This is attributed to unclear debt figures and a lack of substantial economic reforms under President Mohamed Muizzu.
A month ago, India announced a $760 million (₹6,550 crore) bailout package to help the Maldives avoid a sovereign default. Earlier, in October 2024, India provided a $50 million interest-free loan at the request of the Maldivian government to assist with its debt obligations. This marked the second loan rollover in 2024, following a similar extension in May.
President Mohamed Muizzu also conducted a five-day state visit to India in October last year, his first bilateral trip to the country since taking office.
President Muizzu's Visit to New Delhi
During President Muizzu's visit to India in October last year, the two countries agreed to initiate discussions on a Free Trade Agreement (FTA) aimed at facilitating the trade of goods and services.
India-Maldives Diplomatic Dispute
In early 2024, diplomatic tensions between India and the Maldives intensified after Maldivian officials made derogatory remarks about Indian Prime Minister Narendra Modi. The controversy arose following PM Modi’s social media post praising the natural beauty of India’s Lakshadweep islands.
In response to the public outcry, the Maldivian government took action by suspending the officials involved. Additionally, two junior ministers, Malsha Shareef and Mariyam Shiuna, stepped down from their positions ahead of President Mohamed Muizzu’s scheduled visit to New Delhi.
Despite these measures, the diplomatic dispute had economic consequences, with Indian tourist arrivals to the Maldives dropping by 42% in the first four months of 2024 compared to the same period in 2023.
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