Maldives Moves to Mend Fences with India But New Delhi Is Wary

COLOMBO: The Maldivian government led by President Abdulla Yameen appears keen on mending fences with India ahead of the tough Presidential election later this year, More so as it fears that the opposition parties led by the Maldivian Democratic Party (MDP) might get the backing of India and the Western Powers.

Yameen sent his Foreign Minister, Dr.Mohamed Asim, to New Delhi earlier this week to assure Prime Minister Narendra Modi and Foreign Minister Sushma Swaraj, that the Maldives has not strayed from the path of friendship with India despite developing close ties with China.

Indian concerns about the geo-political consequences of the Maldives’ ties with China, especially after a path breaking FTA with China was rushed through, and its joining China’s One Belt One Road (OBOR) global project, were apparently not assuaged by President Yameen’s recent public statements in favor of India.

Following the standoff FDI Delhi over the sacking of three local body officials belonging to the opposition MDP for meeting the Indian Ambassador without prior permission, Yameen had tried to assuage India by describing India as the “Maldives’ closest ally”. He also appealed to the Maldivian media not to spread negative sentiments about India. Earlier, Yameen had hailed China as the “Maldives’ closest development partner”.

And the Maldivian Ambassador in Sri Lanka Mohamad Hussain Shareef had said that India need not at all worry about the Maldives turning to China for security because his country depends on India and Sri Lanka for its security “and none else”.

The decision to send a special envoy to India also came in the context of mounting pre-election challenges which Yameen is facing from the United Opposition, which is not only against the Free Trade Agreement (FTA) with China in preference to an FTA with India, but is also against Yameen’s general preference for China over India in all matters.

But Asim’s visit is dismissed by the opposition as being too small a step taken too late.

A spokesperson of the Maldives United Opposition said that Yameen’s move is but a “move to avoid direct interaction with his Indian counterpart, either forced by China not to, or he is too proud and big to go.”

Asim assured India that the Maldives is committed to its “India First” policy adopted in 2016 and promised to take up the implementation of pending India-aided developmental projects (though the Maldivian Ambassador to India had told Tribune India that it is India which has been slow in this matter moving on these projects).

On its part, India made it clear to Asim that Maldives should adhere to its ‘India First’ policy, just as India is committed to its “Neighborhood First’ policy.

Apparently, New Delhi has not taken Asim’s assurances at face value. That it would rather wait and watch was evident in Prime Minister Narendra Modi’s response to Yameen’s invitation to pay an official visit to his country, the only country in South Asia which Modi has not visited since he came to power in May 2014 with his “Neighborhood First” policy.

Significantly, Modi said he would visit the Maldives “at the appropriate time” (not “at a mutually convenient time”). The Indian Prime Minister has clearly put the Maldivian government on probation, as it were.

Be that as it may, the bee in New Delhi’s bonnet, currently, is the FTA with China. India feels that the Maldives should have entered into an FTA with India first instead of rushing into one with China to its own detriment.

Writing in Colombo’ financial daily, DailyFT, Ibrahim Athif Shakoor, says that the Maldives-China FTA (MCFTA) is designed to spread the duty concession on the Maldives’ imports from China over eight years with 70% of the tariff lines being made duty free immediately. Another 20% would be included in 5 years and a further 5%in eight years. Therefore, at the end of eight years, 95% of the items imported from China will receive full duty concession.

On its part, China immediately offers the Maldives full duty free status for 96.45% of the tariff line.

But like in the past, imports would be vastly more than the exports, especially with an FTA with a manufacturing giant like China.

For the last three years the difference between imports and exports of goods has been minus US$ 1.7 billion on an average. As per customs statistics, Maldives imported MVR 29.1 billion of goods from the outside world in 2015 of which imports from China were worth MVR 2.2 billion; a 7% share of the imports.

However, in 2016, the total import bill was MVR 32 billion of which Chinese imports were MVR 4.3 billion. This represented a 13.42% share of the import value; nearly doubling the share of Chinese origin goods from 2015. According to the 2018 budget, imports had increased tremendously in 2017. With the FTA imports from China would go up to 20% Shakoor adds.

According to the Executive Summary of the FTA, the anticipated revenue loss in import duty for the year 2018 is US$ 4 million. It is only 2.04% of the anticipated import duty for the year.

The Maldivian government argues that as a result of the FTA, Maldivian exporters will have greater access to the vast Chinese market.

In 2015, Maldives exported MVR 2.2 billion goods to the world, of which exports to China accounted for only MVR 535,000, a mere 0.02% of the country’s total exports.The average value of exports to China in the past three years for which exports statistics are available (2013-2015) was MVR 1.2 million, Shakoor points out.

Presently, exports of fishery products to China incurs a 15% duty. But with the FTA, Maldivian exporters would immediately receive full duty- free access to the Chinese market.

With imports from China slated to gallop thanks to the FTA, the national debt is expected to mount. Finance Minister Ahmed Munavvar said that at the end of 2018, public debt would be around MVR 43 billion (US$ 2.7 billion) or 60 % of GDP. But the IMF and the World Bank predict Maldivian debt to reach 121% of GDP by 2020.

According to the Maldivian Monetary Authority (MMA), foreign debt was MVR 11.7 billion (US$ 780 million ) at the end of 2016. It rose to MVR 17.4 billion (US$ 1.1 billion ) at the end of 2017 and will go up to MVR 21.7 billion (US$ 1.4 billion) by the end of 2018.

The MMA has warned of dwindling national reserves as the rate of foreign borrowing increases. MMA Governor Ahmed Naseer noted that the 2016 budget had projected a deficit of MVR 3.4 billion (US$ 220.7 million) while the actual deficit at the end of year was MVR 6.7 billion (US$ 435 million).

Funds borrowed for capital expenditure could cost a lot, and, as the Sri Lankan experience shows, Chinese funds could be expensive though easily available.

The FTA opens 64 areas of services to Chinese entrepreneurs. This could adversely affect local entrepreneurs who are active in many of the services, Shakoor warns