New Delhi: India has reaffirmed its willingness to assist the Maldives as the island nation approaches the world’s first sukuk default. The emergency funding from India aims to help the Maldives meet its external debt obligations due next month. This support comes even as the Maldives has pledged to meet its debt obligations, causing a recovery in the value of its dollar-denominated sukuks from a record low.

According to a Bloomberg report citing informed sources, the Maldives can immediately access $400 million through the Reserve Bank of India’s currency swap program. Additionally, it can seek long-term loans under an $800 million line of credit extended by India in 2019.

While it is not clear if the Maldives has officially requested assistance from India, Maldivian authorities stated last month that they were working on a $400 million foreign-currency swap with India’s central bank and a green bond sale.

The issue is expected to be discussed during President Mohamed Muizzu’s upcoming visit to India.

Moody’s recently downgraded the Maldives to junk status due to the increased risk of default stemming from dwindling foreign reserves. Sukuk is a Sharia-compliant financial instrument widely used in the Islamic world. With double-digit losses this year, the Maldives’ sukuk is the worst-performing debt on the Bloomberg EM Sovereign Total Return Index.

The Observer Research Foundation in Delhi reported that the Maldives’ debt stood at 110% of its gross domestic product as of March 2024. Bloomberg data shows that the country faces a $25 million payment on its approximately $500 million of outstanding sukuk debt in October.

While a foreign-currency swap and other temporary measures may provide short-term relief, they will not resolve the underlying crisis. Ties between India and the Maldives had been strained in 2023 after President Muizzu took office on an anti-India platform and sought to strengthen relations with China.