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| Photo Credit: The Hindu

Maldives President Mohamed Muizzu has taken “necessary steps” to introduce India’s Unified Payments Interface (UPI) in the archipelago nation, slated to benefit the Maldivian economy substantially.

Developed by the National Payments Corporation of India (NPCI), UPI is an instant real-time payment system for facilitating inter-bank transactions through mobile phones.

Mr. Muizzu on Sunday set up a consortium to introduce UPI in the country and appointed TradeNet Maldives Corporation Limited as its leading agency, according to a press release by the President’s Office.

The president also suggested the participation of the country’s banks, telecom companies, state-owned companies and fintech companies in the consortium.

He “decided to take the necessary steps” on the recommendation of the Cabinet, the press release said.

“This move is expected to bring significant benefits to the Maldivian economy, including increased financial inclusion, improved efficiency in financial transactions, and enhanced digital infrastructure,” it said.

Mr. Muizzu also constituted an inter-agency coordination team comprising the Ministry of Finance, the Ministry of Homeland Security and Technology and the country’s Monetary Authority to lead the Ministry of Economic Development and Trade in overseeing the establishment of the UPI in the Maldives.

The agreement to introduce UPI in Maldives was signed during External Affairs Minister S. Jaishankar’s three-day official visit to the country in August.

Earlier this month, dollar-starved Maldives floated a new foreign currency regulation, limiting types of transactions allowed in foreign currency and imposing mandatory foreign currency exchange controls on tourism establishments and banks.

The Maldivian economy appears to have taken a hit after calls to Indian tourists to avoid the picturesque island nation as a response to President Muizzu’s ‘India Out’ campaign last year.

Mr. Muizzu won the presidential election last year on an ‘India out’ campaign and asked New Delhi to withdraw its military personnel posted in the archipelago nation by May this year. However, Muizzu has since toned down his anti-India stance and visited India on his first state visit to the country earlier this month.

Tourism is the main source of economic activity for the Maldives, contributing nearly 30 per cent of the GDP and generating more than 60 per cent of foreign exchange.

A file photo of the flag of Republic of Maldives.

Despite global lenders and rating agencies flagging a “high risk” of debt distress in the Maldives, the government said it is well prepared to stave off a financial meltdown.

Addressing Colombo-based journalists on Friday evening (September 13, 2024), Minister of Foreign Affairs Moosa Zameer and Minister of Finance Mohamed Shafeeq ruled out a possible default and pointed to “crucial steps” taken by the government towards fiscal consolidation and reform.

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The top officials’ assurance comes days after rating agency Moody’s downgraded the island country’s credit rating and warned of a full-blown debt crisis and possible default, amid looming deadlines for foreign debt servicing.

President Mohamed Muizzu assumed office in November 2023 after a big election win — he has a comfortable majority in Parliament or People’s Majlis as well — but currently faces a daunting challenge as the Indian Ocean archipelago grapples with high external debt. “The Muizzu administration is taking advice from the International Monetary Fund, but there is no immediate plan to sign up for its programme,” the Ministers said, expressing confidence that its bilateral partners would step in.

China is the Maldives’s largest creditor and India is another key lender. The two countries are financing a host of infrastructure projects that the government hopes will aid better connectivity and economic development. “Both India and China are very sensitive to our challenge and are willing to help,” Mr. Zameer said, pointing to “many options” on the table, including a possible debt freeze, currency swaps, and local currency settlements. “We will discuss these as and when there is a need.”

On Friday (September 13, 2024), the Maldives’s Ministry of Economic Development & Trade signed an agreement with the People’s Bank of China to establish a local currency settlement framework. Authorities are in talks with India for a similar arrangement.

“We are already taking all the necessary steps including reform of State-Owned Enterprises and our health sector. We are switching from blanket to targeted subsidies and rationalising our public expenditure,” Mr. Shafees said. Following the downgrade by Moody’s, the Finance Ministry said it was engaging with all its bilateral and multilateral partners to meet the financing requirements, and that a “strong performance” in the vital tourism sector was expected to boost growth.

Tourist arrivals have seen an uptick in 2024. Chinese arrivals lead the list, contributing 12% of visitors, while arrivals from India declined sharply from 11% of visitors to 6%, the World Bank said in its May 2024 update. The period coincides with strained bilateral ties between India and the Maldives, on the heels of the “India Out” campaign around Mr. Muizzu’s election last year, and amid controversial statements made by two junior ministers in his government that triggered a call to “boycott Maldives” within India.

Emphasising that relations have since seen a marked improvement, Mr. Zameer said Indian tourist arrivals are “picking up very well” and the neighbours are keen to strengthen ties. “We have had high-level engagement”, including External Affairs Minister Jaishankar’s visit to the Maldives in August, and the countries’ “very pragmatic” leaders have addressed the “initial mistrust”, he said. President Muizzu is expected to travel to New Delhi soon on his first bilateral visit, although he has Mr. Modi on the sidelines of other global meets and at Mr. Modi’s swearing in ceremony this year.

“I think India-Maldives ties now are as good as they were during President Maumoon Abdul Gayoom’s time, which is considered the best time in our relationship,” Mr. Zameer added.