ISAS Briefs

Summary

On 30 July 2025, Sri Lanka’s President Aruna Kumara Dissanayake concluded his first official state visit to the Maldives. Both Indian Ocean littoral states face similar issues of debt stress and climate change. During the visit, the Sri Lankan president signalled that efforts to streamline foreign investments were underway and invited Maldivian partnerships in the clean energy sector.

The two-day visit by Sri Lankan President Aruna Kumara Dissanayake to the Maldives at the end of July 2025 coincided with the 60th anniversary of Maldivian independence and formal diplomatic relations between the two Indian Ocean states. During his official address, Dissanayake reaffirmed Sri Lanka’s commitment to deepening economic ties with the Maldives, emphasising the importance of diversifying the bilateral relationship. He welcomed Maldivian investments in Sri Lanka and highlighted ongoing efforts to establish a single-window system to streamline foreign investments, particularly within investor-friendly Technology Parks. Sectors such as agro-processing, information technology, artificial intelligence, tourism and leisure, real estate and urban infrastructure were identified as key areas for future collaboration.

The Sri Lankan president also underscored the importance of clean energy partnerships, noting Sri Lanka’s goal of generating 70 per cent of its electricity from renewable sources by 2030. Beyond economic cooperation, both countries pledged to enhance collaboration in education, climate change, fisheries, agriculture, food security, air connectivity and youth development. During the visit, the two sides signed a Mutual Legal Assistance Agreement and a memorandum of understanding between the Foreign Service Institute of Maldives and the Bandaranaike International Diplomatic Training Institute of Sri Lanka.

Shared Responsibilities among Ocean-Dependent Economies

As ocean-dependent economies and littoral states, Sri Lanka and the Maldives rely heavily on marine-based industries such as tourism, fisheries and port services, while facing common challenges like climate change, marine pollution and unregulated fishing. Maritime security has, therefore, become a key area of bilateral partnership as the Indian Ocean becomes increasingly contested amid rising global trade and strategic competition.

In his media statement, Dissanayake highlighted Sri Lanka’s commitment to sustainable development through the ‘Clean Sri Lanka’ programme, built on the pillars of social, environmental and ethical development. Drawing parallels with the ‘Maldives Clean Environment’ project for solid waste management, Dissanayake stressed the growing importance of collaborative efforts in addressing climate change and global warming.

Cooperation through regional frameworks, such as the Indian Ocean Rim Association and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, is becoming increasingly relevant to secure the territorial waters and exclusive economic zones of these island states. Both governments reaffirmed close cooperation in enhancing bilateral cooperation in both air connectivity and maritime security through joint naval exercises, intelligence sharing, interoperability and professional training.

A Diplomatic Reset in the Indian Ocean

Dissanayake’s visit to Malé followed closely Indian Prime Minister Narendra Modi’s first official visit to the Maldives after Maldivian President Mohamed Muizzu took office in 2023. Initial ties between India and the Maldives were strained, following the politically charged ‘Indian Out’ campaign in the Maldives, the subsequent signing of a defence pact between Beijing and Malé in March 2024 and the implementation of a free trade agreement between the Maldives and China in January 2025. However, bilateral ties between India and the Maldives have notably strengthened over the past year. Muizzu’s visit to India for a diplomatic reset marked a significant step forward, culminating in a Comprehensive Economic and Maritime Security Partnership. Modi’s visit in July 2025 further solidified this growing relationship.

The Indian prime minister’s visit comes at a crucial juncture as Sri Lanka attempts to manoeuvre a limited fiscal space following its debt crisis in 2022. India was a source of key assistance during this period and provided economic assistance in line of credit and grant assistance exceeding US$5 billion (S$6.7 billion). The Maldives also faces serious issues of mounting debt and rapidly depleting foreign exchange reserves, and the country’s total debt stock has increased from US$3 billion (S$4 billion) in 2018 to US$8.2 billion (S$11 billion) in 2024, of which US$3.4 billion ($4.6 billion) is external debt, and China and India are the primary creditors. During Modi’s visit, India announced a US$565 million (S$758 million) credit line to support critical infrastructure in the Maldives.

Trade Alternatives amid Rising US Tariffs

India’s efforts to reinvigorate its relations with the Maldives and its strengthening relations with Sri Lanka since 2022 signal its efforts to deepen South Asian regionalism and double down on its ‘Neighbourhood First’ strategy. Regional integration is increasingly significant in light of India’s emerging standoff with the United States (US) over recent tariff developments. By August 2025, countries in South Asia like Sri Lanka, the Maldives, Bangladesh, and Pakistan had successfully negotiated the new US tariffs down to around 20 per cent. In contrast, US tariffs on India are significantly higher, at 50 per cent, following the recent announcement of additional tariffs imposed by the US, citing India’s oil imports from Russia.

India is likely to respond by exploring diplomatic alternatives, with reports suggesting that Modi may visit China for the first time in seven years. While the US remains a major export destination for most countries in South Asia and the Asian region, the increasing volatility and unpredictability in trade with the US is likely to accelerate affected countries to recalibrate and vitalise trade with alternative trade partners and blocs such as the BRICS (Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates). Efforts by smaller states, such as Sri Lanka and the Maldives, to navigate these tensions will also be seen as an opportunity by other trading blocs such as the Association of Southeast Asian Nations and BRICS to increase their trade relations with them.

. . . . .

Dr Rajni Gamage is a Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore (NUS). She can be contacted at r.gamage@nus.edu.sg. Ms Mriganika Singh Tanwar is a Research Analyst at the same institute. She can be contacted at m.tanwar@nus.edu.sg. The authors bear full responsibility for the facts cited and opinions expressed in this paper.

Pic Credit: Twitter