The tourist paradise of Maldives is facing the risk of falling into foreign debt default. (Source: Getty)

India is reportedly preparing to extend financial support to the Maldives as the island nation faces its first-ever sukuk (a type of Islamic bond) default, the newspaper said.

In June, international credit rating agency Fitch downgraded the Maldives' credit rating and warned that the South Asian tourist paradise could fall into foreign debt default.

According to Bloomberg , Maldives can immediately access $400 million under the Reserve Bank of India's (RBI) currency swap scheme, while additional long-term loans can be applied under an $800 million credit line extended in 2019.

The potential aid would help the Maldives pay its foreign debt due next month, especially amid growing concerns about defaults on sukuk, a type of Islamic bond.

The Maldives government has recently committed to meeting its obligations, which has helped boost the value of sukuk from record lows.

Bloomberg reported that the Maldives is due to make a $25 million payment in October, part of a $500 million sukuk loan. The Maldives Monetary Authority confirmed that it is discussing a $400 million currency swap with India, but India’s Ministry of External Affairs and other relevant agencies did not comment on the matter.

Maldives' debt has soared to 110% of GDP as of March 2024, while foreign exchange reserves have dwindled, according to the Observer Research Foundation (ORF).

Official data shows that Maldives' external debt exceeded $4 billion in 2023, accounting for about 118% of the country's gross domestic product and up nearly $250 million from 2022.

Meanwhile, speaking during a visit to Sri Lanka on September 13, Foreign Minister Moosa Zameer said that the challenges the Maldives is facing are "only temporary" and the country has no plans to seek a bailout from the International Monetary Fund (IMF).

Earlier this week, President's Office spokesperson Heena Waleed said the Maldives leader would "soon visit" neighboring India. The visit could take place by the middle of next week, according to the Indian Express .