Maldivian foreign policy will continue to be guided by the country's substantial external financing requirements, resulting from a wide deficit on its current account and high levels of external debt, much of which is owed to China. Its strategic location in the Indian Ocean means that it will continue to garner a lot of interest from India and China, both of which are keen to expand their influence in the region.

Relations between China and the Maldives, which flourished 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. The current provisions of the FTA mandate that the Maldivian government will have to cease the imposition of duties on imports from China. This will not only reduce fiscal revenue but also increase the price competitiveness of Chinese goods relative to other imports in the local market, hurting trade relations with other countries. We expect that the government will look to revise the terms of the FTA (and of any other deals agreed with Chinese companies).

By contrast, relations with India have strengthened under Mr Solih, and the countries will continue to deepen bilateral ties during the forecast period. Links will be cemented by India's increased participation in infrastructure develop-ment projects and active assistance in supplying vaccines to the Maldives. India has repeatedly lent financial support to the Maldivian administration, the most recent of which was budgetary support of US$250m in September 2020; it has also signed a US$400m financing agreement to fund the Greater Malé Connectivity Project (GMCP), with the aim of matching China's role in the archipelago's infrastructure projects. The Maldives' large financing needs and India's strategic interest in the country will underpin their strong relations during the forecast period.

Nevertheless, the Maldivian govern-ment 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 the Maldives signed the Framework for a Defence and Security Relationship with the US-its first military agreement with any country other than India. Soon after, the US government announced its plan to open an embassy in the Maldives under its Indo-Pacific strategy, which seeks to counter China's growing influence in the region by increasing US engagement in smaller nations. Notably, the Indian government has also welcomed closer US-Maldives relations, in sharp contrast to its stance in 2013, when it blocked Mr Nasheed's plans to sign a Status of Forces Agreement with the US.