The country's diplomatic relations will be guided, to a large extent, by its huge external financing requirements, resulting from its massive current-account shortfall. Furthermore, its strategic location in the Indian Ocean means that it will continue to garner a lot of interest from India and China, which are keen to expand their influence in the region.

Relations between China and the Maldives, which prospered under the administration of Mr Yameen, have soured under Mr Solih. The free-trade agreement (FTA) between the two countries that was signed in December 2017 remains in limbo, and is unlikely to be implemented in 2021-22. Our view is further reinforced by recent comments made by Fayyaz Ismail, Maldives' minister of economic development, who, despite acknowledging some advantages to the fisheries and tourism sector, asserted that the current provisions of the FTA, whereby the Maldivian government would have to cease the imposition of duties on imports from China, would increase their price competitiveness and hurt trade relations with other countries. We expect that the government will look to revise the terms of many such deals agreed with Chinese companies.

By contrast, relations with India have strengthened under Mr Solih, and the two countries will continue to deepen bilateral ties during the forecast period. Our view is supported by a number of visits by high-level officials from both countries, including several meetings between Mr Solih and India's prime minister, Narendra Modi, since Mr Solih came to power. The Export-Import Bank of India (Exim Bank), on behalf of the government, signed a US$400m financing agreement with Maldives in early October 2020, to fund the Greater Malé Connectivity Project (GMCP). This is indicative of India's commitment to providing greater financial support, partly offsetting the much-reduced role of China in financing infrastructure projects in Maldives.

Nevertheless, the Maldivian government is likely to look to balance the influence of India against that of other regional powers, such as the US and Japan, in order to maximise its negotiating power. In September 2020 Maldives signed the Framework for a Defence and Security Relationship with the US, its first military agreement with any country other than India. Both parties highlighted their intent to deepen engagement for maintaining peace and security in the Indian Ocean, while Mr Solih stressed that the pact would not harm India's role of net security provider in the islands. The government of India has also welcomed the agreement, in sharp contrast with its stance in 2013 when it had blocked Mr Nasheed's plans of signing a Status of Forces Agreement (SOFA) with the US.