India-Maldives currency swap: RBI’s $400 million support lifts FX reserves; Fitch cites easing of liquidity strain in rating note

India on Saturday welcomed the improvement in the Maldives’ foreign exchange (FX) reserves, noting with satisfaction that the $400 million currency swap between the Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA) played a significant role in easing the island nation’s external liquidity pressures.The Indian High Commission in Male said it “noted with satisfaction” that the rise in the Maldives’ FX reserves — highlighted in a recent sovereign credit rating report — was primarily driven by the $400 million drawdown under the RBI-MMA currency swap arrangement activated in October 2024.“The currency swap alleviated imminent external liquidity strains,” the Indian High Commission posted on X, citing the latest Fitch credit rating update on the Maldives.Global rating agency Fitch Ratings, which affirmed the Maldives’ long-term foreign-currency issuer default rating at ‘CC’ on Thursday, acknowledged the critical support extended by India in shoring up the country’s reserves, PTI reported. The rating agency attributed the reserve buildup to a combination of factors, including strong tourism receipts, the implementation of a new Foreign Currency Act mandating 20% exchange of tourism-linked forex earnings, and financial assistance from India.According to the Sun Online news portal, Fitch noted that while the gross FX reserves had improved — aided notably by the RBI’s currency swap — the Maldives continues to face structural fiscal and external challenges.Fitch projected the country’s fiscal deficit to widen to 14.5% of GDP in 2025, up from 14% in 2024, driven by high recurrent spending, particularly rising public sector wages and delays in implementing reforms related to subsidies and healthcare expenditure. The agency also warned that these vulnerabilities could complicate refinancing of Maldives’ large external debt obligations in the near future.India’s currency swap support to the Maldives is part of a broader effort to assist its maritime neighbour in navigating macroeconomic headwinds. The swap arrangement — extended under the SAARC framework — has previously been deployed to stabilize short-term dollar liquidity in the region.Saturday’s acknowledgment by Indian authorities comes amid evolving India-Maldives ties, where economic cooperation continues to be a cornerstone despite political frictions.

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