Amid diplomatic row, India remains biggest source of external loans for Maldives

According to the latest figures released by the Maldives Ministry of Finance, India remains the biggest source of development aid for the Indian Ocean atoll nation, writes ETV Bharat’s Aroonim Bhuyan.

New Delhi: Amid the ongoing diplomatic row between India and the Maldives, the latest statistics show that the biggest source of external loans taken by the government of the Indian Ocean archipelago nation is India. Though there has been a lot of news about India reducing financial aid to the Maldives in Finance Minister Nirmala Sitharaman’s interim budget for fiscal 2024-25, figures released by the Maldives Ministry of Finance show that India’s neighbour in the Indian Ocean procured six loans totalling around $1.4 billion since 2018 till the end of last year from the Exim Bank of India.

During Prime Minister Narendra Modi’s visit to the Maldives in 2018, India announced a financial assistance package of $1.4 billion as loans and grants as part of the Neighbourhood First Policy. As part of this, India announced a line of credit totalling $800 million to the Maldives in March 2019. Then in in 2020, the Maldives procured a loan of $400 million from the Exim Bank of India for the Greater Male Connectivity Project. The project features a 6.74 km-long bridge and causeway connection linking Male to the nearby islands of Villingli, Gulhifalhu and Thilafushi.

This innovative project will harness renewable energy sources. It not only represents India’s most significant venture in the Maldives, but also stands as the country's largest infrastructure project overall. Recognised as the economic backbone for the Maldives, this endeavour is poised to substantially enhance connectivity among the four islands, which collectively house approximately half of the Maldivian population. Anticipated benefits include a heightened level of dynamism in both transportation and economic activities within the Maldives.

In 2021, yet another line of credit of $50 million for various projects in the Maldives was announced by India. The same year, another line of credit of $40 million was announced by India for the development of sports infrastructure. The allocated credit line is earmarked exclusively for the construction of various stadiums and sports complexes throughout the Maldives, designed to accommodate a diverse range of sports such as football, athletics, badminton, tennis, table tennis, and various indoor activities.

Additionally, these funds aim to prepare the Maldives for hosting the Indian Ocean Island Games. As part of the $800 million line of credit announced in 2018, India has committed to constructing an international cricket stadium in the Maldives. The initiation of the cricket stadium project in Hulhumale marked one of the initial endeavours under the $800 million line of credit extended to the Maldives.

In August 2022, India announced a line of credit of over $40 million for the development of police infrastructure in the Maldives. The infrastructure includes a custodial facility and expansion of two existing buildings in K Dhoonidhoo. It also includes 23 police stations in the atolls, 21 police posts, eight atoll police stations, a police station in Male and a police station and four accommodation buildings in Hulhumale Phase II.

In October of the same year, India extended another line of credit worth $100 million. According to a report in the Edition news website of the Maldives, the disbursement of loans for various projects will occur incrementally as each project progresses. Given that many of these projects are ongoing, the future repayments to the Exim Bank of India are expected to rise.

“Former President Ibrahim Mohamed Solih's government borrowed heavily from India, while the previous government before that relied on China to borrow,” the report stated. “China’s borrowings are also estimated at $1.4 billion. This includes loans with sovereign guarantees.” As part of New Delhi’s Neighbourhood First Policy, the Maldives is strategically significant to India because of its location in the Indian Ocean. India and the Maldives share ethnic, linguistic, cultural, religious and commercial links steeped in antiquity and enjoy close, cordial and multi-dimensional relations. However, regime instability in the Maldives since 2008 has posed significant challenges to the India-Maldives relationship, particularly in the political and strategic spheres.

Although India continues to be an important partner of the Maldives, New Delhi, cannot afford to be complacent over its position and must remain attentive to the developments in the Maldives. India must play a key role within the Indo-Pacific security space to ensure regional security in South Asia and surrounding maritime boundaries. China’s strategic footprint in India’s neighbourhood has increased. The Maldives has emerged as an important ‘pearl’ in China’s ‘String of Pearls’ construct in South Asia.

The Maldivian finance ministry has released the latest external loan figures at a time when new Maldives President Mohamed Muizzu has taken a series of anti-India and pro-China steps as part of his foreign policy. This has taken ties between New Delhi and Male to a new low. It remains to be seen how New Delhi’s approach to extending development aid to the Maldives will go from here.