India has raised concerns over recent trade agreements signed by the Maldives with China and Turkey, warning that such deals could negatively impact the island nation's fragile economy. The Indian Ministry of External Affairs (MEA) stated on Friday that agreements leading to revenue losses for the Maldivian government could harm its long-term fiscal stability.
"Recent agreements that are likely to result in revenue loss for the Maldives government are obviously a matter of concern and do not bode well for the country's long-term fiscal stability," Indian foreign ministry spokesperson Randhir Jaiswal told reporters. "We would obviously need to take that into account while framing our own policies," he added, without directly naming China or Turkey.
The Maldives, strategically located in the Indian Ocean, has been struggling with low foreign exchange reserves and mounting external debt, raising fears of a potential default. Its $7.8 billion economy heavily relies on imports, with China being one of its major trading partners. Analysts warn that the free trade agreement between China and the Maldives, which came into effect on January 1, could widen Male's balance of payments deficit with China, lead to customs duty losses, and increase vulnerability to supply chain disruptions.
Additionally, the Maldives signed a trade pact with Turkey last year, reportedly involving reduced tariffs on both sides. The Maldivian embassy in New Delhi has yet to respond to India's concerns.
China and India are among the Maldives' largest creditors. According to World Bank data, China has extended $1.37 billion in loans to the Maldives, while India has provided $124 million. In October, India signed a $400-million loan agreement with the Maldives and a 30-billion-rupee ($346 million) bilateral currency swap deal. The two nations also agreed to explore a free trade agreement focused on goods and services.
Despite these efforts, credit rating agency Moody's warned in December that the Maldives' foreign exchange reserves remain critically low due to its "substantial external debt obligations." The agency expects the country to continue seeking bilateral and multilateral financing to strengthen its external financial position.
As India and China compete for influence in the region, the Maldives' economic choices will likely remain under close international scrutiny.