India ‘satisfied’ with role of USD 400m currency swap in boosting Maldives’ FX reserves

India has expressed satisfaction at the role of the USD 400 million currency swap between Male’ and New Delhi in boosting Maldives’ foreign exchange (FX) reserves, thereby alleviating imminent external liquidity strains.

The Maldives Monetary Authority (MMA) and the Reserve Bank of India (RBI) signed the USD 400 million in October 2024, proving a backstop line of funding for Maldives’ short-term FX liquidity requirements.

Global credit rating agency Fitch, which maintained Maldives’ Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'CC’ on Thursday, noted that country’s FX reserves have increased due to solid tourism-related receipts, the newly implemented Foreign Currency Act which mandates tourism-related businesses to exchange either 20 percent of monthly foreign-currency receipts, and the support from the RBI, alleviating imminent external liquidity strains.

In a statement on X on Saturday morning, the Indian High Commission in Maldives said New Delhi was satisfied that the increase in FX reserves was driven by the USD 400 million drawdown under the currency swap between the MMA and RBI.

India notes with satisfaction that the FX reserves increase in Maldives was driven by the $400 million drawdown under a currency swap between MMA & RBI in Oct 24, which alleviated imminent external liquidity strains as noted by Fitch credit rating for Maldives. pic.twitter.com/VQN2FFG2AL

— India in Maldives (@HCIMaldives) June 14, 2025

Fitch assesses that “a default event of some sort remains probable” for the Maldives. The rating agency said that while the tourism sector continues to expand and gross FX reserves have increased following support from RBI, persistent external and fiscal vulnerabilities will complicate refinancing of Maldives’ impending large external debt-servicing obligations in the year ahead.

The agency projects the Maldives’ fiscal deficit will widen to 14.5 percent of GDP in 2025, up from 14 percent in 2024 on high recurrent spending, mainly due to expectation of rising public wage and continued delays in the planned fiscal reforms of subsidies and healthcare spending largely due to political considerations.

Fitch stressed the need for Maldives to strengthen external financing capability and external buffers, and to make significant progress in implementing a credible fiscal consolidation strategy, putting public debt on a declining medium-term trajectory.

Elected to office on a pledge to expel Indian troops from the Maldives, relations between Male’ and New Delhi had been strained in the early days of President Dr. Mohamed Muizzu’s administration.

Things escalated further three months into office when three deputy ministers made disparaging remarks regarding India and Indian Prime Minister Modi following a social media post promoting India’s Lakshadweep as an alternative tourist destination to the Maldives.

Speaking to reporters after concluding a state visit to China the same month, President Muizzu said that Maldives wasn’t any country’s backyard and that the country cannot be bullied just because its small – remarks that were widely believed to be directed at India.

But despite the earlier turmoil, officials from both Male’ and Delhi repeatedly expressed keenness to repairing relations, and engaged in several high-level visits, including two by President Muizzu himself.

Fitch assesses that while Maldives may succeed in securing continued external financing support from strategic creditors such as India to service its debt, it will not mitigate the underlying vulnerabilities, which are continuing to build.