Maldives' recent trade pacts 'matter of concern', says India, hinting at China, Turkey

India is concerned recent trade pacts signed by the Maldives will likely hurt the archipelago’s cash-strapped economy, the Indian foreign ministry said on Friday, in a reference to agreements between the Maldives and China, as well as Turkey.

China and India both vie for influence in the strategically located Indian Ocean nation, whose $7.8 billion economy has struggled with low foreign exchange reserves and substantial external debt, sparking fears of a default.

Analysts have previously said that a free trade agreement between China and the Maldives, which came into effect on Jan. 1, risks increase Male’s balance of payments deficit with China, one of its main sources for consumer goods, lead to customs duty losses, and make it vulnerable to supply chain disruptions.

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The Maldives also signed a trade pact with Turkey last year, which local media reports said involved reduced tariffs on both sides.

“Recent agreements that are likely to result in revenue loss for the Maldives government are obviously a matter of concern and do not bode well for the long-term fiscal stability of the country,” Indian foreign ministry spokesperson Randhir Jaiswal told reporters.

“We would obviously need to take that into account while framing our own policies,” he added, without naming any country.

The embassy of the Maldives in New Delhi did not immediately respond to a request for comment.

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Much of the money the Maldives owes is to China and India, which have extended $1.37 billion and $124 million, respectively, in loans, World Bank data shows.

In October, India signed a $400-million and a 30-billion rupee ($346 million) bilateral currency swap agreement with the Maldives and also agreed to initiate talks on a free trade agreement focusing on goods and services.

But reserves still remain very low in lieu of “substantial external debt obligations”, ratings agency Moody’s said in December, adding that it expected the Maldives “to continue to be tested on securing bilateral and multilateral financing to shore up external buffers”. ($1 = 86.5650 Indian rupees)