By P.K.Balachandran/Ceylon Today
Colombo, November 26: In the last ten years, the political pendulum in the Maldives has been swinging between India and China. Maldives was ardently pro-China from 2013 to 2018 during the Presidency of Abdulla Yameen. But it swung completely to the Indian side when Ibrahim Solih replaced Yameen.
When Yameen’s protégé, Mohamed Muizzu, won the Presidential election in 2023, there was every indication of a swing back to China. But that was not to be. After India gave much-needed financial assistance to Maldives at a time when China offered no help, President Muizzu buried the hatchet and embraced India wholeheartedly.
With India and Maldives getting closer by the day, the two countries are aiming at signing a Comprehensive Economic and Maritime Security Partnership Agreement (CEMSPA). CEDPA will be a new milestone in India’s bilateral cooperation policy because it marries economic and maritime security cooperation. If signed, it will be the first of its kind, a new model for India’s relations with its maritime neighbours.
During the meeting between the Maldivian President Dr.Mohamed Muizzzu and Indian Prime Minister Narendra Modi in New Delhi on October 7, the leaders acknowledged that it was an opportune time for both sides to chart a new framework for cooperation with an aim to comprehensively transform the bilateral relationship to a “Comprehensive Economic and Maritime Security Partnership” which is people-centric and future-oriented and be an anchor of stability in the Indian Ocean Region.
The latest in the series of Indo-Maldivian agreement was the MOU signed in New Delhi between the Reserve Bank of India (RBI) and the Maldivian Monetary Authority (MMA) to allow the use of the Maldivian Rufiyya and the Indian Rupee in Maldives-India trade.
Indo-Maldivian bilateral trade is of the order of US$ 485 million. Between August 2023 and August 2024 the exports of India increased by US$ 41.7 million (104%) from S$ 40 million US$ 81.7 million, while imports increased by US$ 7.48 million (30.8%) from US$ 24.3 million to US$ 31.8 million.
Uses of Local Currencies Trade
The framework envisaged by the RBI-MMA MOU will enable exporters and importers to invoice and settle in their respective domestic currencies, which, in turn, will facilitate the development of trading in the INR-MVR pair in the foreign exchange market. The use of local currencies will optimise costs and reduce settlement time for transactions, the RBI said in a statement.
“The MoU encourages the use of INR and MVR in current account transactions, permissible capital account transactions, and any other economic and financial transactions as agreed upon by both countries,” an RBI statement said.
The costs of the dependence on currencies outside of the region for the settlement of trade in the region results in cost for changing currencies for trade settlement; the instability in export prices in response to exchange rate changes and costs of hedging exchange rate risks.
In contrast, the merits of using the local currencies for trade settlement reveals encouraging efficiency in trade and investment transactions; lowering the above mentioned costs; enhancing export competitiveness arising from cost effectiveness; and promoting trade and investment at the firm, country and regional levels.
The RBI-MMA agreement will allow businesses in both countries to invoice and settle transactions in their respective domestic currencies, with the framework aiming to facilitate trading in the Maldivian Rufiyaa and Indian Rupee (MVR-INR) currency pair within the foreign exchange market, the Maldives’ central bank said.
The arrangement will enable businesses in both markets to pay for the import and export of goods and services with their local currencies. The use of local currencies would also reduce costs and improve settlement times, the MMA highlighted.
“This MoU is a significant step forward in enhancing trade and financial ties between the Maldives and India. By enabling the use of local currencies for bilateral transactions, it will strengthen economic cooperation, promote trade, and foster closer financial integration between the two countries,” the MMA said in a statement
“This collaboration marks a key milestone in strengthening bilateral cooperation between the RBI and MMA,” the RBI added, noting that the use of local currencies in bilateral transactions will eventually contribute to promoting trade between India and Maldives, deepen financial integration, and strengthen economic relations between the two countries.
Growing Ties
During President Muizzu’s visit to New Delh in October, the two countries signed a bilateral currency swap agreement enabling the Maldives’ central bank to draw a swap facility under two windows; a USD/EUR window and an INR window, respectively, against the MVR.
The swap facility would allow the MMA to make multiple drawals up to a maximum limit of US$400 million in addition to INR 30 billion, within the existing ‘Framework on Currency Swap Arrangement for SAARC Countries, 2024-2027’.
The USD/EUR swap facility is aimed at supporting the Maldives’ foreign exchange liquidity requirements, while the INR swap facility would allow trade settlement in local currencies.
The Maldivian President thanked India for its timely emergency financial assistance, including by way of rolling over Treasury-bills subscribed by the State Bank of India amounting to USD 100 million in May and September 2024 for a further period of one year that provided the much needed financial cushion for Maldives in addressing its urgent financing needs.
He expressed appreciation for the decision of the Government of India to extend support in the form of USD 400 million and INR 30 billion as a bilateral currency swap agreement, instrumental in tackling the ongoing financial challenges faced by the Maldives.
India has agreed to extend full support for the timely completion of the flagship Greater Malé Connectivity Project (GMCP), and to undertake a feasibility study to connect the islands of Thilafushi and Giraavaru as an extension. The two leaders also agreed to develop a state-of-the-art commercial port at Thilafushi island in order to de-congest the Malé port and provide enhanced cargo handling capacity at Thilafushi.
The two countries have decided to explore collaboration for development of transshipment facilities and bunkering services contributing towards Maldives Economic Gateway project at Ihavandhippolhu and Gaadhoo islands of Maldives; and to jointly work in harnessing the full potential of Hanimaadhoo and Gan airports that are being developed with Indian assistance as well as other airports of Maldives.
Towards this end, both sides will also consider measures to strengthen air connectivity, attract investments and collaborate for efficient management of these airports.
Modi and Muizzu decided to establish an “Agriculture Economic Zone” and tourism investments in Haa Dhaalu atoll and fish processing and canning facility at Haa Alifu atoll with Indian assistance and to further expand through additional financing the successful High Impact Community Development Projects to take the India-Maldives people-centric development partnership to every part of Maldives.
FTA
In view of significant untapped potential for bilateral trade & investment, the two sides agreed to initiate discussions on a Bilateral Free Trade Agreement focusing on trade in goods and services between the two countries and to promote bilateral investments and closer engagements between the two business chambers and entities; steps shall be taken for disseminating information relating to investment opportunities and to improve ease of doing business;
A decision was also taken to enhance efforts to boost tourism between the two countries through marketing campaigns and collaborative efforts and share expertise on implementation of digital and financial services.
In this context, there was a decision to cooperate in the domain of Digital Public Infrastructure (DPI) by launch of India’s Unified Payments Interface (UPI), Unique Digital Identity, Gati Shakti Scheme and other digital services that will enhance e-governance and delivery of services through digital domain for the benefit of people of Maldives.
While welcoming the launch of RuPay card in Maldives, which will enhance ease of payments for Indian tourists visiting Maldives, the two countries decided to work closely to extend similar services for Maldivian nationals visiting India.
Energy Cooperation
Given the role of energy security in ensuring sustainable development, the two sides agreed to explore cooperation through implementation of solar power and other renewable energy and energy efficiency projects to bring down energy costs and enable Maldives to achieve its NDC Goals, both sides will establish a framework for an institutional partnership which will include training, exchange of visits, joint research, technical projects and promotion of investments.
Towards this end, both sides will also undertake a feasibility study to identify measures that would enable Maldives to participate in the One Sun One World One Grid initiative.
Defence & Security Cooperation
India and Maldives share common challenges in the Indian Ocean Region which have multi-dimensional implications for the security and development of both the countries. They resolved to work together in advancing the maritime and security cooperation for the benefit of peoples of both India and Maldives as well as for the larger Indian Ocean Region.
Maldives, with its vast Exclusive Economic Zone, is exposed to traditional and non-traditional maritime challenges including piracy, IUU fishing, drug smuggling, and terrorism.
The two countries agreed that India will work closely with Maldives in sharing of expertise, augmenting capabilities and undertake joint cooperative measures, as per needs and requirements of Maldives.
The also agreed that the ongoing Maldives National Defence Force (MNDF) ‘Ekatha’ harbour project at Uthuru Thila Falhu (UTF) with India’s assistance will significantly contribute towards enhancing MNDF’s operational capabilities, and agreed to extend full support for its timely completion.
The two sides also agreed to support Maldives with provisioning of defence platforms and assets to augment capabilities of MNDF as well as that of the Government of Maldives in advancing its maritime and security requirements in line with its national priorities;
India will support Maldives in enhancing surveillance and monitoring capability of MNDF with the provisioning of radar systems and other equipment. India will also support Maldives on Hydrographic matters, including, through capacity building and training, as per the requirements of the Government of Maldives.
India will assist Maldives in the domain of Information Sharing by supporting the development of capabilities through infrastructure, training and sharing of best practices. It will inaugurate at an early date the state-of-the-art Maldivian Ministry of Defence (MoD) building in Malé, constructed with India’s assistance, that will augment modern infrastructural capacity of the MoD.
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