July 2024, Malé: the Maldives finds itself at a critical juncture, navigating the turbulent waters of great power competition in the Indian Ocean. Recent developments have highlighted the contradictions inherent in the country’s attempt to balance its strategic interests amidst intensifying rivalry between India and China, while grappling with a mounting public debt crisis.
Political Landscape and Strategic Realignment
The September 2023 presidential election saw the victory of Dr. Mohamed Muizzu, marking a significant shift away from the previous administration’s foreign policy priorities.
Removing Indian troops and Indian presence, was Dr. Muizzu’s flagship election promise, which raised alarm bells in New Delhi while being undoubtedly welcomed by Beijing. In first moves as the new government ensured a visit to Beijing as the port of call for his inaugural state visit, while where he announced increased financial and military cooperation. The two sides agreed to “elevate China-Maldives relations to a comprehensive strategic cooperative partnership.”
Maldives seemed to have swivelled, once again, from “India- first,” to “India- Out.”
This strategic pivot was not without forewarning, nor has it been without critics. Dr. Muizzu campaigned on an “India-Out” platform. His party and affiliated political backers often cite financial over-reliance on New Delhi and an overly strong Indian foothold in the Maldives. Opposing viewpoints highlight India’s dependability as a development partner and the “debt-trap” risks with Beijing. Many express concerns about the rapid shifts in foreign policy orientation, every time government changes hands.
The political discourse reflects broader societal discussions over the country’s foreign policy direction, with some segments supporting closer ties with China for economic reasons, while others advocate for maintaining strong relations with traditional partners, especially with India. This debate underscores the complex balancing act the Maldives faces in its international relations.
Topsy- Turvy Foreign Policy
- Traditionally, India has been the Maldives’ closest ally due to geographical proximity and historical ties. Key aspects of Indian influence over decades have included security cooperation, finiancial and development assistance, and “soft-diplomacy.”
- Since joining China’s Belt and Road initiative in 2014, China became the biggest investor in the Maldives, funding infrastructure projects including bridges, airports, and housing developments.
- Both Chinese and Indian tourists are a crucial source of revenue for the Maldivian economy, giving both Beijing and New Delhi significant economic leverage.
Economic Challenges
On 27 June, Fitch Ratings downgraded the Maldives’ IDR to ‘CCC+’, reflecting on increased risks associated with “worsening external financing and liquidity metrics”, weakening foreign-reserve buffers and rising external government debt vis a vis the “upcoming external debt-servicing obligations,” saying “we expect the Maldives’ foreign reserves to remain under significant stress in the coming year. Fitch also put usable foreign reserves at USD73 million; the country’s monthly reliance for staples, oil and medicines stands at over USD100 million. On June 26, the World Bank said, “the economic vulnerabilities that the Maldives face now is a combination of debt stock accumulation in the last 10 years, as well as continuously high fiscal and current account deficits over the same period.” In May, the IMF had flagged “the need for immediate policy adjustments to safeguard macroeconomic and financial stability, restore debt sustainability, and support sustained strong and inclusive growth.”
The government immediately announced several spending cuts, from number of political posts, to streamlining subsidies to reform SOEs.
The Debt Crisis
The Maldives’ mounting debt is the most central issue in its relations with both India and China.
Over the past decade, the Maldives has borrowed some $1.5 billion from Chinese sources, which now makes up 20 percent of its public debt. China, as the largest bilateral creditor, announced writing off just $50 million in loans. The Chinese Amabassador said debt restructuring is not the solution for the Maldives, as it will hinder future aid from Beijing.
Meanwhile, India extended budgetary support of nearly US$ 50 million, and increased the export quotas of essential commodities.
Security Dynamics and Maritime Cooperation
The shifting balance in the Maldives’ foreign relations has had significant implications for regional security dynamics. The Maldives government’s decision to review its defense cooperation agreement with India creates uncertainty about the future of joint patrols and maritime domain awareness initiatives.
In contrast, China has proposed enhanced maritime security cooperation, including joint naval exercises and the potential establishment of a maritime research station in the Maldives. These proposals are viewed by analysts as part of China’s broader strategy to establish a permanent presence in the Indian Ocean.
Other Great Power Interests in the Maldives
After decades of a predictable “non-aligned” policy under one strong-man leader, the past two decades’ topsy-turvy foreign policy, has meant that other global and regional powers, have also needed to continuously assess their engagement with the country.
As the two Asian giants vie for influence in the country and the region, as China’s influence grows, the Maldives is unquestionably an arena also for US-China strategic competition. The United States seeks to maintain its influence in the Maldives as a counterweight to China’s growing presence in the Indian Ocean region, opening its first embassy in the country in 2023.
The United Kingdom with its historical ties to the Maldives, has been working to maintain its influence through aid programmes and support for democratic institutions. The EU has been focused on supporting the Maldives’ democratic reforms and addressing climate change concerns, while also seeking to balance China’s economic influence. All three actors- the USA, the UK, the EU- have maintained maritime securityand counterterrorism programmes in the country. Japan and Australia are also key development and security partners, with Saudi Arabia and the UAE also increasing their investments.
The Maldives’ location along critical sea lanes has made it vital geopolitically, for as long as people have traded, and as long as military leaders have sought to overpower one another in these waters. These watersare crucial for ensuring freedom of navigation and maritime security, with a significant portion of the world’s oil shipments passing through nearby chokepoints.
The Maldives grappling with issues of extremist recruitment, and with growing violent extremist attacks in the country, amidst growing concerns about radicalisation in South Asia, the US, and other partners view the Maldives as a focus for counterterrorism efforts.
Navigating Choppy Waters
The Maldives’ experience offers a stark illustration in small state diplomacy and the limits of strategic hedging. Its attempts to leverage its strategic location and balance competing interests between India and China have yielded mixed results, often exacerbating domestic political divisions and economic vulnerabilities.
As the Indo-Pacific strategic landscape continues to evolve, the Maldives’ ability to pursue its national interests will be severely tested. Dr. Muizzu’s administration must navigate a precarious path between economic development needs, debt sustainability, and security concerns. As the rivalry between India and China in the Indian Ocean intensifies, the choices made by the Maldives will have significant implications for regional stability and the emerging Indo-Pacific order. The coming months will also be crucial domestically, as the Muizzu- administration attempts to layout the announced spending cuts, restructure its debt, balance its foreign relations, and chart a course towards sustainable economic development.
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