India approves USD 150 million currency swap facility to aid Maldives

Maldives Monetary Authority (MMA) headquarters in Male' City. (Sun Photo/Fayaz Moosa)

India, on Tuesday, announced the decision to provide the Maldivian central bank a USD 150 million foreign currency swap facility under the larger USD 400 million currency swap agreement signed between Maldives and India in July 2019.

The Indian High Commission issued a statement this afternoon, announcing that the currency swap agreement was being activated “to help Maldives mitigate the impact of COVID-19 pandemic on the country’s financial system and to help stabilize the exchange rate and ease liquidity”.

The move comes a week after a telephone conversation between Maldivian President Ibrahim Mohamed Solih and Indian Prime Minister Narendra Modi, during which India promised to “stand by its close maritime neighbor and friend in this challenging time.”

The USD 400 million currency swap facility is part of the USD 1.4 billion economic package pledged by India to Maldives during President Solihs state visit to India in December 2018.

Other components of the economic package includes; a USD 50 million direct budget support which was extended in 2019, subscription of Maldivian T-bills worth USD 150 million by State Bank of India (SBI) which was completed in 2019, and a USD 800 million line of credit under which eight large infrastructure projects have been identified and are in various stages of implementation.

In addition to the economic package, India is also funding socioeconomic projects in the atolls worth approximately USD 12.6 million under grant schemes and High Impact Community Development Projects (HICDP) scheme.

India has reiterated its commitment to providing assistance to Maldives, and announced it was considering extending the validity of the USD 400 million currency swap facility by one year.

Maldivian Finance Minister Ibrahim Ameer has stated the COVID-19 pandemic has severely depleted Maldives’ income sources, prompting an urgent need to find alternative sources of finance in order to manage the cash flow in the short-run.

He said the government needed an immediate MVR 4.4 billion to manage its cash flow in order to maintain public services, fund healthcare services, and provide socioeconomic support to citizens over the next three months.

The Parliament recently approved his request to increase the overdraft limit of Maldives’ public bank account at the central bank in order access the necessary finance.