Debt-laden Maldives reclaims transshipment port project from China and hands it to India, signaling the revival of longstanding ties with New Delhi
The Maldives, renowned for its stunning resorts and tranquil beaches, is grappling with an escalating debt crisis and trying to balance its relationships with its two major creditors: India and China. As the island nation faces the threat of debt default, the leadership of President Mohamed Muizzu will be tested by how effectively he manages this complex economic and geopolitical situation.
As of August 2024, the Maldives’ foreign currency reserves stood at $437 million, enough to cover only about a month and a half of import costs. The nation is expected to incur $600-$700 million in debt servicing costs in 2025, with more than $1 billion due in 2026. The Maldives owes approximately $1.3 billion to China and $130 million to India.
In this challenging financial context, President Muizzu met Indian Prime Minister Narendra Modi in New Delhi on October 7, seeking financial support amid fears that the country may default on a critical $25 million bond payment. According to Reuters, India extended a $400 million currency swap agreement to the Maldives, providing a much-needed short-term financial lifeline.
.webp) |
| Modi 3.0 | Narendra Modi with Maldives President Mohamed Muizzu. There is a sense of renewed engagement between the two new governments. (Photo courtesy: The President's Office of the Republic of Maldives) |
While this support may stave off an immediate default on the Maldives' Sukuk debt, the nation’s broader economic challenges remain unresolved, with significant debt repayments looming.
Rebuilding ties with India and distancing from China
Against the backdrop of this economic turmoil, President Muizzu’s administration has decided to proceed with India’s involvement in the transshipment port project at Gaadhoo Island, located in the Laamu Atoll. During Muizzu’s visit to India, both countries agreed to collaborate on developing the transshipment ports at Gaadhoo and the Ihavandhippolhu region.
Initially, an agreement had been signed with China’s CAMC Engineering Company Limited on April 11 to establish an integrated maritime hub at Gaadhoo, with Maldives Ports Limited (MPL), a state-owned entity, overseeing the project. However, despite CAMC being blacklisted by several major international banks, no visible progress on the project has been made, as confirmed by satellite images.
It remains unclear whether the CAMC contract has been officially revoked. Neither the Maldives nor India have provided further clarification on how they plan to move forward with India’s involvement in the project.
In April, the Muizzu administration announced plans for a Gaadhoo Integrated Maritime Hub, which would include a transshipment port, a cruise terminal, a yacht marina, and an eco-resort. Additionally, the Maldives Industrial Development Free Zone (MIDFZ), a state-owned entity, was assigned to develop the Ihavandhippolhu area as the "Maldives Economic Gateway." However, no entity has yet been selected to commence work on this exclusive economic zone.
 |
| During the signing of the MoU between Maldives Port Limited and China's CAMC Engineering to develop the Laamu Aoll Maritime Hub in April this year |
The development of these transshipment ports in both Gaadhoo in the south and Ihavandhippolhu in the north are key components of President Muizzu’s election pledges.
Geopolitical rivalries and economic weaknesses
The Maldives’ economic struggles are deeply tied to the geopolitical rivalry between India and China. Over the past decade, the island nation has borrowed heavily from both countries, each offering financial aid with distinct strategic objectives.
China’s loans have primarily funded infrastructure projects under its Belt and Road Initiative, helping Beijing expand its influence in the Indian Ocean. Conversely, India views the Maldives as crucial to its regional security strategy and has provided financial assistance to counter China’s growing footprint.
President Muizzu’s ascent to power in 2023 was fueled by the “India Out” campaign, which sought to reduce the Maldives’ reliance on New Delhi and strengthen ties with Beijing. Throughout his campaign, Muizzu pledged to expel Indian soldiers stationed in the Maldives for humanitarian missions.
 |
| Maldives Current President Mohamed Muizzu during 'India Out' campaign in Maldives as an Opposition Leader (File Photo) |
Responding to this political pressure, India withdrew many of its soldiers, replacing them with civilian experts. However, as the Maldives' debt crisis deepened, the Muizzu administration adopted a more pragmatic approach, softening its stance toward India and recognizing that the nation’s immediate economic survival depends on securing financial support from both India and China.
The Maldives faces profound structural challenges, with an unsustainable debt burden and an economy heavily reliant on tourism—a sector vulnerable to global economic downturns, as seen during the COVID-19 pandemic. Additionally, the country imports the majority of its essential goods, and rising global commodity prices have further strained its finances, depleting foreign reserves and making debt repayment even more difficult.
Caught between India and China, both of which have significant economic and strategic interests in the Maldives, the island nation must navigate a delicate path. For China, the Maldives is a vital link in its maritime strategy, while for India, the Maldives plays a crucial role in countering Chinese influence in the region. President Muizzu must secure financial aid without compromising the country’s sovereignty.
India has strong incentives to foster closer ties with the Maldives. Recent political shifts in South Asia have seen several pro-India governments lose power, presenting setbacks for New Delhi. In Sri Lanka, Marxist politician Anura Kumara Dissanayake became president. In Bangladesh, Prime Minister Sheikh Hasina, considered highly pro-India, fled to India following student-led protests. Meanwhile, pro-China politician K.P. Sharma Oli returned as prime minister in Nepal.
Rebuilding its relationship with the Maldives could represent a significant political win for India and Prime Minister Modi, helping to offset these recent diplomatic setbacks in the region.
(Generated from various news agencies)
No comments: