India Approves ₹3,000 Crore Currency Support for Maldives

India has taken a significant step to regional cooperation and economic stability by approving a ₹3,000 crore (₹30 billion) currency swap facility for the Maldives under the SAARC Currency Swap Framework. This move reinforces India’s role as a key financial partner in the South Asian region.

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¨    The facility is being extended through the Indian Rupee (INR) swap window, as part of the broader SAARC Currency Swap Arrangement.

¨    This marks the first drawdown under the current framework, which was put in place by the RBI in June 2024, for the period 2024 to 2027.

¨   Under it, the RBI and the Maldives government signed the bilateral agreement during President Mohamed Muizzu’s State visit to New Delhi in October 2024.

¨     It follows the maturity of a $400 million swap facility availed by the Maldives in October 2024 under the USD/Euro window.

¨ The move comes amid external liquidity pressures and foreign exchange constraints faced by the Maldives economy.

What is a Currency Swap?

¨   A currency swap is a financial arrangement between two countries’ central banks to exchange currencies for a predefined period.

¨     It involves borrowing one currency in exchange for another, with an agreement to repay the original currency, along with interest, at a specified future date.

¨  It provides short-term foreign exchange liquidity without requiring countries to tap international capital markets. 

¨   Such arrangements help manage the balance of payments pressures, currency volatility, and external shocks.

SAARC Currency Swap Arrangement

¨ The SAARC Currency Swap Framework is a regional financial arrangement introduced by India in 2012 to provide short-term foreign exchange liquidity support to SAARC countries.

¨  It allows participating countries to exchange local currency for foreign currency (USD/Euro/INR) through swap windows under pre-agreed terms.

¨     The framework helps countries address balance of payments pressures and avoid external borrowing shocks.

¨     The total corpus (for 2024–27) is $2 billion under the USD/Euro window and ₹250 billion (₹25,000 crore) under the INR window. It is available to SAARC members upon signing bilateral swap agreements.

 

¨     Under this framework, the Maldives Monetary Authority signed an agreement in October 2024 for up to $400 million under the USD/Euro window and ₹30 billion under the INR window.

Significance of the Currency Swap

¨  Economic Stability for Maldives: Provides immediate liquidity support, helping manage foreign exchange shortages and stabilise macroeconomic conditions.

¨  Strengthening Neighbourhood First Policy: It enhances bilateral trust and economic cooperation, while reinforcing India’s position as a reliable partner and “first responder” in the region.

¨  Regional Financial Cooperation: It demonstrates the effectiveness of SAARC mechanisms in addressing regional economic challenges and also promotes financial resilience and cooperation in South Asia.

¨     Strategic and Geopolitical Importance: It strengthens India’s influence in the Indian Ocean Region (IOR) and aligns with India’s broader initiatives, such as Neighbourhood First and Vision MAHASAGAR.