Update Country Report Maldives 20 Aug 2020

Event

During an online meeting between the foreign ministers of the Maldives and India in mid-August, the Indian foreign minister, Subrahmanyam Jaishankar, announced that his government would provide financial assistance worth US$500m to fund the construction of the Greater Malé Connectivity Project (GMCP).

Analysis

The GMCP will connect Malé (the capital of the Maldives) with three neighbouring islands (Villingili, Gulhifahu and Thilafushi) by a 6.7-km bridge-and-causeway link. The financial package that India is offering to the Maldives for the construction of this project includes a US$100m grant; the remaining US$400m will be in the form of a loan. The Indian government also committed to providing urgent financial assistance (through concessional loans) to help the Maldivian government to cope with the economic challenges stemming from the coronavirus (Covid-19) pandemic. Mr Jaishankar also announced the formation of an "air travel bubble" between India and the Maldives that will boost Indian outbound tourism to the latter (although international travel remains suspended in India).

Owing to its strategic location in the Indian Ocean, the Maldives garners a lot of interest from India and China, both of which are keen to expand their influence in the region. The previous Maldivian administration, led by Abdulla Yameen Abdul Gayoom, had pivoted away from India and towards China, and had taken on significant Chinese debt to fund infrastructure projects. Diplomatic ties between the Maldives and India have strengthened significantly since Ibrahim Mohamed Solih took over as president of the former in November 2018.

The Indian government's commitments to the Maldives (particularly financial support for the GMCP) reflect its firm intention to maintain a strong diplomatic relationship with the island nation. The GMCP will be the largest civil infrastructure project in the country, overshadowing the 1.39-km Maldives-China Friendship Bridge that connects Malé with Hulhule island; that was the biggest of the China-funded infrastructure projects undertaken during Mr Yameen's presidency.

Impact on the forecast

The latest developments reinforce our view that under Mr Solih's government, the Maldives will continue to cultivate closer bilateral ties with India during the forecast period (2020-21). The archipelago's strategically important location will also ensure that India continues to show interest in the Maldives.