India to Offer Emergency Financial Support to Maldives Amid Default Concerns

International news sources, citing Indian officials, have revealed that India is prepared to offer the Maldives emergency financial support to address its fiscal challenges amid concerns over a potential default on its sukuk bonds.

Bloomberg reported that the Maldives has the option to access up to USD 400 million from the Reserve Bank of India’s (RBI) currency swap programme, which is available to regional nations. Additionally, the Maldives can seek long-term loans from a USD 800 million credit line extended to it by India in 2019.

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It is not yet clear if the Maldivian government has formally requested assistance from India. However, discussions on this issue are anticipated during President Dr. Mohamed Muizzu’s forthcoming visit to New Delhi. A spokesperson for the President’s Office confirmed last week that the visit is scheduled to take place “very soon.”

This emergency funding would assist the Maldives in meeting its external debt obligations due next month, as there are concerns about a potential default on the world’s first Islamic bond. The Maldives is due to make a second coupon payment of USD 25 million on 8 October, related to its approximately USD 500 million sukuk debt. The country also faces external debt service obligations of around USD 600 million in 2025 and over USD 1 billion in 2026.

In response to these default risks, Moody’s has downgraded the Maldives’ credit rating from CAA1 to CAA2, while Fitch has reduced the country’s rating from CCC+ to CC.

Finance Minister Dr. Mohamed Shafeeq has reassured that the Maldives will meet its debt obligations. The October coupon payment will be the last sukuk payment for this year, and the Maldives has not yet defaulted on any sukuk payments.

Dr Shafeeq has previously indicated plans to refinance USD 500 million (MVR 7.7 billion) of the debt repayment obligations due in 2026. As of the end of August, the Maldives’ reserves stood at USD 444 million, up from USD 395 million at the end of July.

The Maldivian government has undertaken a series of financial reforms to mitigate default risks, including significant cost-cutting measures within state-owned enterprises and planned tax reforms.