Paradise beaches, breathtaking landscapes, a destination for millions of tourists every year and a secret dream for those who want to escape the tiring daily routine. But the Maldives could now experience one of the most dramatic moments in their recent history. The tropical country in fact risks being overwhelmed not by the calm waves of the Indian Ocean, but by the stormy waves of a possible financial default. On October 8, the island state may not be able to pay the interest on bonds linked to Sharia – the principles of Islamic law. “Sukuk” are in fact debt securities that respect the principle according to which one should not profit from interest but despite this, at the end of the first quarter of 2024 they had reached a total of more than 867 billion dollars in emissions worldwide. However, in the last two months the bonds have recorded an unprecedented collapse: on September 4 they were trading for just 69.5 cents, a complete fall compared to the 93 cents of June. But how did it get to this point?
The country’s currency situation has been deteriorating for months. In June 2024, the Maldives’ foreign exchange reserves amounted to just $395 million, about half the previous year’s $700 million. In addition, the sums immediately available, according to the archipelago’s monetary authorities, stood at around $45 million. Complicating the situation is the Fitch rating agency, which at the end of August decided to reduce the Maldives’ credit rating from CCC+ to CC, a threshold not far from the fearsome D which indicates default. Will the Maldives be able to resist this default?
For the international market, it is an unprecedented scenario and opinions are discordant. As reconstructed by Il Corriere della Sera, the first nation to be particularly interested in the fate of the Maldives is India. First of all, because it is one of the main creditors of Malè. And then because in the background of the non-thriving situation of the archipelago there is the geopolitical competition with Beijing. The new government of the Maldives was in fact elected in April thanks to Chinese support and on the wave of the slogan “India out”. But despite the desire to detach itself from the control of New Delhi, it is increasingly likely that it will turn to India to resolve the situation. The Reserve Bank of India and the Maldives Monetary Authority are in fact negotiating the granting of a 400 million dollar credit line that could give relief, at least for the moment, to the sukuk bond crisis and avoid default. Will they succeed?
#Maldives #risk #collapse #financial #default #corner #Tempo
2024-09-06 17:27:38
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Maldives on the Brink of Financial Default: A Tropical Paradise in Crisis
The Maldives, a tropical paradise famous for its breathtaking landscapes and crystal-clear waters, is facing one of the most dramatic moments in its recent history. The island nation is at risk of being overwhelmed by a financial crisis, rather than the calm waves of the Indian Ocean. On October 8, the Maldives may not be able to pay the interest on bonds linked to Sharia, also known as Sukuk, which could lead to a financial default.
What are Sukuk Bonds?
Sukuk bonds are debt securities that respect the principles of Islamic law, which prohibit the collection of interest. Despite this, Sukuk bonds have become increasingly popular globally, with a total of over $867 billion in emissions worldwide as of the first quarter of 2024. However, in the last two months, these bonds have recorded an unprecedented collapse, trading at just 69.5 cents on September 4, a significant fall from the 93 cents in June.
The Maldives’ Currency Crisis
The country’s currency situation has been deteriorating for months. In June 2024, the Maldives’ foreign exchange reserves amounted to just $395 million, about half the previous year’s $700 million. Additionally, the sums immediately available, according to the archipelago’s monetary authorities, stood at around $45 million. The Fitch rating agency has further complicated the situation by reducing the Maldives’ credit rating from CCC+ to CC, a threshold not far from the default threshold of D.
Will the Maldives Resist Default?
The international market is watching the situation unfold with bated breath. Opinions are discordant, with some predicting a potential default, while others believe the Maldives can still find a way out of this crisis. India, a major creditor of the Maldives, is particularly interested in the country’s fate, given its geopolitical competition with China. The new government of the Maldives, elected in April with Chinese support, may need to turn to India to resolve the situation, despite its initial desire to detach itself from New Delhi’s control.
Geo-Political Implications
The Maldives’ financial crisis has far-reaching geo-political implications. If India does decide to intervene, it could strengthen its influence over the island nation, countering China’s growing presence in the region. On the other hand, a default by the Maldives could have a ripple effect on the entire region, impacting trade and investment flows.
The Future of the Maldives
As the October 8 deadline approaches, the world waits with bated breath to see if the Maldives can avoid a financial default. Will the country be able to find a way out of this crisis, or will it succumb to the stormy waves of financial turmoil? Only time will tell.
Keywords: Maldives, financial default,
