Prime Minister Narendra Modi with President of Maldives Mohamed Muizzu after his swearing-in ceremony, in New Delhi, Sunday, June 9, 2024.
Beijing/Male: President Mohamed Muizzu has thanked India and China for helping strengthen the Maldives' fragile economy, highlighting the importance of the two countries in addressing the Island nation's looming debt crisis and its future development.
China and India provide the most assistance in repaying the country's debt, President Muizzu said on Friday at an official function held to mark the 59th anniversary of the country's independence.
"I thank the Chinese government and the Indian government on behalf of the Maldivian people for their cooperation with this effort to strengthen the economy, to assure our economic sovereignty, for the sake of the Maldivian people," Muizzu was quoted as saying by Maldivian news portal adhadhu.com.
Muizzu came to power last year on an anti-India campaign plank seeking the removal of around 80 Indian military personnel operating helicopters and Dornier aircraft donated by India.
China for its part has scaled up its relations with Maldives, since Muzzu, widely regarded as a pro-Beijing leader, took over power.
Early this year, he visited China during which the two countries elevated their ties to a comprehensive strategic cooperative partnership and signed 20 agreements followed by a military assistance pact with Beijing much to the disquiet of India as Maldives is its closest neighbour located strategically in the Indian Ocean.
He also permitted Chinese research vessels also regarded as “spy ships” to berth in Maldives waters after Sri Lanka banned them for a year.
However, after clinching an agreement with India to replace the military personnel flying the helicopters used to evacuate the patients from a host of islands in the archipelagic nation, Muizzu warmed up to India and attended Prime Minister Narendra Modi’s swearing ceremony.
He also praised Rs 400 crore assistance by India and sought to restructure debt owed to India by Maldives.
The marked change in his policy towards India came as in May this year the International Monetary Fund (IMF) warned the Maldives that it faces a high risk of debt distress without significant policy changes.
The IMF noted that the Maldives' current account deficit is expected to remain large and that its overall fiscal deficits and public debt are projected to stay elevated.
Following this, the Muizzu government sought the restructuring of loans from China. Maldives debt to China reportedly amounted to over USD 1.3 billion about which Beijing initially expressed reservations to restructure the debt.
Muizzu said in his Friday meeting that China has given the green light on deferring loan repayments for five years which will be a big relief to avert Maldives falling into a similar situation faced by Sri Lanka leading to debt default.
At the height of the Sri Lankan crisis, China declined to restructure loans taken by Colombo. India stepped in to bailout Sri Lanka from the crisis with about USD four billion in assistance.
A large portion of the loans taken by the Maldives from China’s Exim Bank for development projects during former president Yameen’s government must be repaid in 2026, according to adhadhu.com report.
The Maldives will face a serious fiscal crisis if the loans are not restructured.
Technical work on restructuring the loans taken from China’s Exim Bank is ongoing, which was how President Muizzu believed that “foreign policy should be shaped to protect the country’s independence,” the report said.
Muizzu also said the implementation of a free trade agreement (FTA) signed between the Maldives and China during Yameen’s government will begin in September and expressed hope to sign a similar agreement with India as well.
Efforts are also underway to enter into FTAs with Turkiye and Britain.
The result of implementing the FTA with China would be the elimination of tariffs for a total of 7,897 items in nine sectors, including 298 fisheries products, Muizzu said.
He also said his government is working on currency swap agreements with China and India to help local businesses.
This would pave the way for alleviating the dollar shortage and assuring economic sovereignty, he said.
For its part, China continues to ramp up its aid to Maldives by strengthening its collaboration in key infrastructure and renewable energy projects that are vital for the sustainable development of the Maldives.
Maldives Foreign Minister Moosa Zameer who was in Beijing early this week held talks with his Chinese counterpart Wang Yi and other officials.
During his visit, the two countries signed a Letter of Exchange on the feasibility study for the redevelopment of Male and Villimal Roads Project, a key pledge of Muizzu's government.
The discussions focused on strengthening collaboration in key infrastructure projects that are vital for the sustainable development of the Maldives, the Maldivian foreign ministry said in a press release on Tuesday.