PM Modi set to visit Maldives: Read how India’s $400 million ‘Sanjeevani Booti’ rescued the island nation’s economy
Prime Minister Narendra Modi is visiting the Maldives for the first time since Mohamed Muizzu became the President. Muizzu won the elections in November 2023 and came to power. Prior to that, he had led the “India Out” campaign. There had also been tensions between the two countries over the promotion of Lakshadweep as a tourism hub. Two Maldivian ministers had to resign due to objectionable remarks made against Prime Minister Narendra Modi.
Now, as India and the Maldives celebrate 60 years of diplomatic relations, PM Modi’s historic visit is taking place. When Muizzu visited India last October, India launched RuPay cards in the Maldives. In recent years, the Maldives has often been described as a close ally of China, but even then, if it realizes that it cannot move forward by ignoring India, there are certain reasons behind this.
One such key reason, which we will discuss in this article, not only proved to be a ‘Sanjivini Booti’ for the Maldives but also reflects India’s generosity and the principle of winning hearts through the philosophy of “Vasudhaiva Kutumbakam” (the world is one family).
India’s timely $50 Million support steadies Maldives amid economic turbulence
Small island economies like the Maldives are especially susceptible to economic shocks amid the choppy waters of global finance. A credit downgrade was imminent, and the Maldives’ foreign exchange reserves were severely strained due to its tourism-driven economy and high external debt. Despite India’s State Bank of India subscription of USD50 million on government issued Treasury Bills by Maldives in May 2024 economy remained turbulent. SBI renewed the subscriptionof USD50 million at the Maldivian government’s request, the previous subscription, which was scheduled to mature on September 19, 2024, has now been extended.
The Maldives thanked India for providing a $50 million Government Treasury Bill, which helped the island nation in its efforts to achieve economic stability through fiscal reform. “Timely assistance from India reflects the close friendship between the two countries and will support the government’s ongoing efforts to implement fiscal reforms for economic resilience,” Maldivian Foreign Minister Abdulla Khaleel wrote on X.
In terms of India’s “Neighbourhood First” strategy and Vision MAHASAGAR – Mutual and Holistic Advancement for Security and Growth Across Regions, the Maldives is a crucial maritime neighbour and partner. Together with India’s earlier decision this year to extend a special quota for essential commodity exports to the Maldives, the Treasury Bill subscription highlights the two countries’ strong bilateral ties and New Delhi’s ongoing commitment to the welfare of the Maldivians.
RBI’s $757 million currency swap strengthens Maldives’ reserves and credit outlook
In light of this, the Reserve Bank of India (RBI) offered the Maldives a $400 million currency swap through the SAARC Currency Swap Framework and 30 billion Indian Rupees ($357 million) under INR Swap window. In addition to temporarily stabilising the Maldivian economy, this action increased investor confidence and avoided a further credit rating downgrade.
This article examines how the RBI’s intervention boosted the Maldives’ foreign reserves, improved its creditworthiness, and demonstrated India’s strategic financial diplomacy in the Indian Ocean region.
A currency swap is essentially an agreement between two central banks to exchange currencies and provide liquidity support to the recipient country. The pandemic and global economic slowdowns had a significant impact on the Maldives, which relies significantly on tourism (which accounts for more than 70% of its foreign currency inflows). Imports of essentials such as fuel and food further strained reserves. The RBI’s $757 million swap occurred at a time when the Maldives’ import cover was dropping below safe levels, and repayment of foreign debt appeared difficult.
The agreement came on the same day i.e 7th October 2024 when Maldivian President Mohamed Muizzu met with Indian Prime Minister Narendra Modi in New Delhi. The $400 million swap line, which is also available in Euros, will help the Maldives meet its foreign exchange needs, according to the MMA. It further stated that the $357 million rupee line will make it easier to settle trade in local currencies.
Prior to the swap, the Maldives’ foreign exchange reserves were decreasing as a result of falling tourism receipts and growing import costs. The MMA said the Maldives’ total Foreign Exchange reserves stood at $443.9 million at the end of August, down from $694.2 million at the same time last year. The Maldives’ foreign exchange reserves were instantly increased by a currency swap from a large economy like India, guaranteeing that the country could pay for external debt servicing and necessary imports.
India helps Maldives to avoid credit downgrade and stabilize its reserves
Foreign reserves are a crucial metric used by credit rating agencies such as Moody’s, S&P, and Fitch to assess a nation’s capacity to fulfil its external commitments. Downgrades frequently follow a significant reduction in reserves or an increase in external vulnerability, which raises the cost of borrowing for the nation.
In August 2024, Fitch downgraded Maldivian bonds to CC from CCC+, indicating a high risk of default. The rating agency stated that rising public debt would limit the Maldives’ ability to get additional financial help from overseas. On September 11, 2024, Moody’s Ratings (Moody’s) lowered the Government of Maldives’ long-term local and foreign currency issuer ratings from Caa1 to Caa2, and the downgrade was reviewed.
India has expressed pleasure with the recent increase in Maldives’ foreign exchange reserves, citing the smooth implementation of a currency swap agreement between the two countries. In a post on X, the Indian High Commission in the Maldives stated that the increase in the Maldives Monetary Authority’s reserves was primarily due to the $400 million drawdown under the currency swap agreement with the Reserve Bank of India in October 2024.
Fitch Ratings noted Gross foreign exchange reserves stood at USD816 million in May 2025, boosted by a USD400 million drawdown under a currency swap agreement signed by the Maldives Monetary Authority with the Reserve Bank of India in October 2024.
The RBI’s currency swap demonstrated to credit rating agencies and global investors that the Maldives had significant financial support from a key regional power. This averted the risk of a credit downgrade, preserving the Maldives’ sovereign rating and preventing an increase in foreign borrowing rates.
Currents of stability: India’s currency swap rescues Maldives
The Maldives is strategically located in the Indian Ocean, and India has consistently positioned itself as the region’s “net security provider”. Extending financial support during a critical period boosted bilateral relations and demonstrated India’s economic leadership. India’s prompt financial involvement through the RBI swap confirmed New Delhi’s position as a reliable partner and quietly resisted Beijing’s expanding influence.
EAM Dr. S Jaishankar speaking at the Indian Ocean Conference 2025: Voyage to New Horizons of Maritime Partnership on February 16, 2025, highlighted New Delhi’s role in stabilising Indian Ocean economies and communities that were under stress. He used the example of India’s $4 billion financial package to Sri Lanka to help stabilise the island nation’s economy, which had fallen into a crisis.
The Maldives was saved from a reserve crisis, its currency was stabilised, and its credit rating was preserved thanks to the RBI’s $400 million currency swap. The importance of regional cooperation and India’s crucial role in maintaining economic stability in its neighbourhood were more significantly reaffirmed. In addition to improving the Maldives’ financial situation, India’s prompt assistance boosted its own strategic location in the Indian Ocean.
Although the swap provides temporary respite, in order to develop long-term resilience, the Maldives must now concentrate on debt management, economic diversification, and fiscal reforms.
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