In 2023, Muizzu rode a wave of nationalist sentiment to power, championing the “India Out” movement for the September 2023 election, which promised the removal of 80 Indian military personnel stationed in the Maldives to maintain reconnaissance helicopters donated by India and appeared to favour deeper ties with China.
With the country on the brink of financial collapse, Muizzu has now recalibrated his stance — a classic case of economic realities driving a dramatic shift in foreign policy.
Economic turmoil drives Maldives toward India
At the core of the Maldives’ foreign policy reversal lies a severe economic crisis.
The country, which is heavily reliant on tourism, is now burdened with an external debt that has surged to 110% of its gross domestic product (GDP).
Maldives foreign exchange reserves have plunged to just $440 million—barely enough to cover six weeks of imports—creating a real threat of default.
Credit agencies such as Moody’s and Fitch have downgraded the Maldives’ ratings, citing its high risk of financial collapse, drawing ominous comparisons to Sri Lanka’s crisis in 2022.
From ‘India Out’ to India’s aid
Amid this financial turmoil, India has emerged as a crucial lifeline.
“India is fully aware of our fiscal difficulties,” Muizzu told the BBC before heading to New Delhi, adding, “As one of our biggest development partners, India will always be ready to ease our burden.”
As expected, India provided significant financial relief to the cash-strapped nation on Monday by extending a $100 million rollover of treasury bills.
The nations also finalised a $400 million and ₹3,000 crore currency swap agreement following discussions between Indian Prime Minister Narendra Modi and Muizzu.
Also read
: Maldives prez Muizzu meets PM Modi to seek financial aid after coming to power on ‘India Out’ election plank
Tourism dependency and the Indian connection
The Maldives’ economy is highly dependent on tourism, and Indian tourists represent a crucial share of its revenue. Muizzu knew this when taking office on November 17, 2023.
Still, after his ascent to power in the Maldives, Muizzu did not heed requests from Maldives opposition parties urging him to issue a formal apology to India. The opposition thought an apology was needed to repair diplomatic ties strained by the ‘India Out’ campaign, restore economic cooperation with India, and prevent further damage to the Maldivian tourism industry.
Tensions escalated when Modi visited Lakshadweep, a strategic location close to the Maldives. Following this visit, remarks from a few Maldivian officials critical of the Indian Prime Minister triggered a sharp decline in Indian tourist arrivals and some Indian travel sites banned bookings for the nation.
The remarks led to the ministers’ swift dismissal but tourism hit exacerbated the country’s financial woes.
Both nations have since taken steps to reduce tensions.
India replaced its military personnel with civilian technical staff to operate the equipment, and diplomatic relations have gradually improved. After reports of Muizzu’s India visit, travel platforms resumed bookings, too.
Also read: Indian travel platforms resume bookings for Maldives
Walking the tightrope of foreign relations
Muizzu’s visit is expected to yield further financial assistance from India. In September, the State Bank of India also subscribed to $50 million worth of Maldivian government bonds.
However, the Maldives’ financial challenges are far from over. The country faces a $25 million Islamic bond (Sukuk) repayment due by October 8 and must service a staggering $1.5 billion in debt over the next two years.
While Muizzu has maintained that his foreign policy adheres to a “Maldives First” principle, his administration faces the challenge of navigating the balance between major global powers.
China has provided some debt relief, including a $130 million grant and a five-year grace period on interest payments. However, these measures fall short of addressing the Maldives’ immediate financial needs.
India, with its longstanding ties to the Maldives, remains the more immediate and accessible source of support. As Maldivian analyst Azim Zahir noted in the BBC article, the country’s reliance on India is not easily replaced, and Muizzu’s efforts to mend ties with New Delhi reflect a pragmatic understanding of this reality.