India “pleased” with boost in Maldives’ foreign reserves following USD 400mn aid
India's USD 400 million currency swap with MMA has "alleviated the Maldives' foreign currency shortage"
Banknotes worth one, five and ten US dollars lie on a table
The government of India has expressed satisfaction over the recent increase in the Maldives’ foreign currency reserves, attributing the improvement to the USD 400 million provided under a currency swap agreement between the Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA), signed in October 2024.
Taking to social media platform ‘X’ on Saturday morning, the High Commission of India in the Maldives noted with satisfaction, that the foreign currency reserves increase in the Maldives was driven by the USD 400 million drawdown under a currency swap between the central bank of Maldives and RBI in October 2024, which the high commission said, “alleviated imminent external liquidity strains as noted by Fitch credit rating for Maldives”.
One of the world’s largest credit rating agencies, Fitch Ratings maintained the Maldives' credit rating at "CC" again, considering the extremely high risk of default, in its ratings released on June 12.
Despite President Dr. Mohamed Muizzu’s assurances upon taking office that there was no cause for concern and that foreign aid matters had been resolved, none of the promised assistance has materialized to date. Notably, the only significant aid received by his administration has come from India, the very country targeted by the ‘India Out’ campaign previously championed by Muizzu.
Referring to Fitch's latest credit rating, India has said that "due to the aid provided by the country, the foreign currency shortage facing the Maldives, as noted in the Fitch credit rating, has been somewhat alleviated."
In a statement released by the government on June 12, it was noted that "the effective use of the currency swap facility between the Reserve Bank of India and the MMA" contributed to the positive change in the Maldives' foreign currency reserves.
The government says that as of June 10, the number of tourists has increased by 9.4 percent compared to the previous year in tourism, which was and still is the main pillar of the Maldivian economy. As a result, Fitch estimates that GDP will grow by 4.8 percent in 2025. With Velana International Airport becoming fully operational this year, the government estimates that GDP will grow by 6.0 percent in 2026, as noted by Fitch.
As of June 5, the total fiscal surplus stood at USD 71 million. The main reason for this is the increased revenue from raising airport taxes and fees, green tax, and import duty rates, contrary to Muizzu's earlier pledge not to increase taxes.
The government said that "as noted by Fitch Ratings, the government recognizes the need for a credible fiscal consolidation strategy." As such, as part of the medium-term fiscal strategy, the government is working to implement a comprehensive fiscal reform agenda aimed at bringing government expenditure to an appropriate level by targeting inefficiencies and waste in the health and energy production sectors.
Although the government claims to be reducing expenditures, it is noted that there is public criticism directed at the government regarding the increase in political appointments and the addition of jobs in companies for political purposes.
On the other hand, Fitch notes that despite the growth in the tourism sector and the increase in total foreign currency reserves with RBI's assistance, the government may face obstacles in refinancing large external debts that need to be repaid in the future.
The current Fitch rating is the same rating the Maldives received last year. Thus, the rating downgraded from 'CCC+' to 'CC' in August 2024, and the rating previously downgraded from 'B-' in June 2024, has been maintained at 'CC'."
