India is reconsidering continuing its financial assistance to the Maldives after the Free Trade Agreement (FTA) signed with China came into force on January 1.
According to the Economic Times, India's biggest concern is that the FTA will cause serious revenue losses to the Maldives.
The FTA with China "will dent Maldives revenue as customs forego will be USD 30-40 million per annum," the Economic Times reported on Tuesday.
India is also concerned about the Maldives preferential trade agreement signed with Turkey in November which could also result in a revenue loss.
Additionally, India predicts that the FTA with China will lead to a "regional trade imbalance" with the amount of imports exceeding the amount of exports.
The Maldives FTA with China was signed in 2017 but came into force on January 1, 2025. The government earlier said the FTA would come into force in September 2024, but the decision was pushed back.
In October 2024, India rolled over a USD 50 million loan for the Maldives. India has also provided a currency swap of USD 400 million and INR 30 billion (MVR 400 million).
Maldives took out an additional USD 74 million loan in October 2024 to refinance the debt owed to China. The loan was taken despite China saying the best option for the Maldives was to repay the loans without refinancing or restructuring.
President Dr. Mohamed Muizzu came to power with an "India Out" campaign. After assuming office, he tried to strengthen relations with China. This resulted in a deterioration of relations with India.
However, the government began to focus on relations with India after the financial situation deteriorated and foreign investment did not come as expected.
India decided to provide financial assistance in return for several agreements including the Maldives' cooperation for the military port in the Uthuru Thila Falhu.
