Note4Students
From UPSC perspective, the following things are important :
Prelims level: SAARC Currency Swap Framework
Why in the News?
The RBI has announced a Currency Swap Agreement with the Maldives Monetary Authority (MMA) under the SAARC Currency Swap Framework 2024-27.
India’s Financial Support to Maldives
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About SAARC Currency Swap Framework:
| Details | |
| Objective | To provide short-term liquidity support to SAARC member countries during financial crises or instability. |
| Administered by | Reserve Bank of India (RBI) |
| Launch Year | 2012 |
| Countries Involved | All SAARC members: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. |
| Facility | Swap arrangement in US Dollar, Euro, or Indian Rupee. |
| Interest Rate | Based on the currency borrowed, includes a margin over international benchmark rates. |
| Purpose | To address the balance of payment crises and provide financial stability. |
| Recent Users | Sri Lanka, Maldives |
Maldives’ Debt Situation
- The Maldives’ debt is now estimated at 110% of its gross domestic product (GDP), with increasing risks of defaulting on its sukuk (Islamic bond).
- A failure to make payments would mark the world’s first default of an Islamic bond.
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- Fitch Ratings estimates that the Maldives’ external debt obligations will reach $557 million by 2025 and exceed $1 billion by 2026.
- The country’s foreign reserves stood at just $437 million at the end of August, only enough to cover one-and-a-half months of imports.
- India provided a $50 million lifeline to the Maldives to help avoid this outcome.
- The Export-Import Bank of India is owed nearly $400 million, while the Export-Import Bank of China is owed about $530 million as of last year.
Significance of India’s Assistance
- Debt Relief: India’s financial aid, including a $50 million lifeline, would help the Maldives avoid debt default and stabilize its economy.
- Geopolitical Influence: With this, India can counter China’s influence in the Maldives, strengthening its strategic position in the Indian Ocean.
- Diplomatic Reset: India’s support strengthens diplomatic relations, aiding the Maldives in debt restructuring and global partnerships.
PYQ:[2019] In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
Select the correct answer using the code given below: (a) 1 only (b) 1 and 3 only (c) 2 only (d) 1, 2 and 3 |
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