Maldivian foreign policy will continue to be guided by the country's substantial external financing requirements, resulting from a wide deficit on the current account and high levels of external debt, much of which is owed to China. Its strategic location in the Indian Ocean means that the Maldives will continue to garner a lot of interest from India and China, which are keen to expand their influence in the region. Under its Indo-Pacific strategy, which seeks to limit China's growing influence in the region, the US will also increase its engagement with the Maldives (and other small nations in South Asia). This is reflected by the Framework for a Defence and Security Relationship with the US-the country's first military agreement with any country other than India-which was signed in 2020. The US government has also announced its plan to open an embassy in the Maldives. Notably, the Indian government has 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.

Relations between China and the Maldives, which flourished under the administration of Mr Yameen, have had less room to prosper 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.

By contrast, relations with India have strengthened under the current administration, and the two countries will continue to deepen bilateral ties during the forecast period. Links will be cemented by India's increased participation in infrastructure development projects. 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. This will overshadow bursts of anti-Indian rhetoric from the local Maldivian media, which have been the case in the past and which we expect to be clamped down on quickly by the administration.