GLOBAL: The Maldives is facing drastic economic challenges as it struggles with the possibility of defaulting on its Sukuk payments, raising concerns among investors about the island nation’s financial stability. In response to this high-risk situation, the Indian government has provided urgent financial assistance to the Maldives by subscribing to its US$50 million government Treasury bill (T-bill) through the State Bank of India.
This zero cost, interest-free funding, marks the second emergency loan extended to the Maldives this year, following a US$50 million T-bill subscription made in May 2024. The new subscription will last for one year, effective the 19th September 2024, the date the previous subscription matures. The government currently holds US$500 million in outstanding Sukuk debt, with a time-bound coupon payment of US$24.6 million due on the 8th October 2024, followed by an additional payment later in the month.
In addition to the swift T-bill assistance, the Maldives is reportedly negotiating a US$400 million currency swap agreement with India. This potential arrangement, alongside a pre-existing US$800 million line of credit extended to the Maldives in 2019, may provide further relief as the country seeks to stabilize its finances.
In August 2024, FitchRatings downgraded the Maldives’s Long-Term Foreign-Currency Issuer Default Rating to ‘CC’ from ‘CCC+’. “We see a rising degree of uncertainty surrounding the government’s plan to access the market and partly refinance the US$500 million Sukuk in 2025, in addition to near-term external liquidity strains,” the ratings agency said.
However, the Maldivian central bank has expressed confidence in the nation’s ability to meet its debt obligations, despite ongoing economic pressures exacerbated by the COVID-19 pandemic, which severely impacted its tourism-dependent economy. In a press conference held on the 6th September 2024, Maldives’s Finance Minister, Dr Mohamed Shafeeq, confirmed that the government faces no difficulties in meeting the coupon payment due next month and reassured the public that the bi-annual coupon payments for the Sukuk remain on track, despite financial strains.
