The Indian government is reconsidering its financial aid to the Maldives after the island nation decided to implement a free trade agreement with China this month, The Economic Times reported.
The move came a month after New Delhi announced financial aid to Male to help it recover from the economic crisis.
The Maldives-China FTA is expected to cause revenue losses for the island nation and create a trade imbalance. The Maldives may lose $30-40 million annually in customs fees due to the FTA, The Economic Times reported.
Additionally, the Maldives is also in talks with Turkey for another trade agreement that is likely to result in similar customs revenue losses.
India has provided immediate financial support to the Maldives, but concerns persist about long-term debt sustainability due to unclear debt levels and a lack of significant economic reforms under President Mohamed Muizzu.
A month ago, India announced a $760 million (?6,550 crore) bailout package for the Maldives to help prevent a sovereign default.
Similarly, India provided a $50 million interest-free loan to support the Maldives in October 2024 to meet its debt obligations. This decision was made at the request of the Maldivian government. This was the second such rollover in 2024, following a similar extension in May.
Maldivian President Mohamed Muizzu undertook a five-day state visit to India in October last year, marking his first bilateral trip to India since assuming office.
During President Muizzu’s visit to India last October, both countries agreed to begin discussions on a Free Trade Agreement (FTA) focused on the trade of goods and services.
In early 2024, diplomatic tensions between India and the Maldives escalated following derogatory remarks made by Maldivian officials about Indian Prime Minister Narendra Modi. The incident began when PM Modi praised the beauty of India’s Lakshadweep islands on social media.
In response to the backlash, the Maldivian government suspended the officials involved in the row. Two junior ministers, Malsha Shareef and Mariyam Shiuna, resigned ahead of President Mohamed Muizzu’s visit to New Delhi.
Despite these efforts, the diplomatic row had economic repercussions. Indian tourist arrivals to the Maldives decreased by 42% in the first four months of 2024 compared to the same period in 2023.
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India rethinks support to Maldives as Male puts China FTA into effect
