On Friday, China’s central bank announced that it has entered into an agreement with the Maldivian government aimed at enhancing trade and investment, as the financially troubled Indian Ocean nation seeks to avert default.

The People’s Bank of China and the Maldivian Ministry of Economic Development and Trade formalized a memorandum of understanding to promote local currency transactions for current account activities and direct investments, according to a statement from the People’s Bank of China, which did not provide additional specifics.

Earlier in the day, China’s foreign ministry indicated that the country, recognized as the world’s second-largest economy and leading bilateral lender, has been in discussions with the Maldives regarding its debt obligations to Beijing and the enhancement of financial collaboration between the two nations. “China will continue to offer support and assistance to the Maldives’ economic and social development within its means,” stated Mao Ning, a spokesperson for the Chinese foreign ministry, during a regular press briefing in Beijing prior to the announcement.

Recently, the Maldives has faced scrutiny over concerns regarding its ability to repay international debts.

On Thursday, the government pledged not to become the first nation to default on Islamic sovereign debt by missing a $25 million payment due next month.

The Maldives’ only sovereign bond saw an increase on Friday, rising to 78.8 cents on the dollar, having gained over 4 cents that day and approximately 10 cents throughout the week, according to Tradeweb data.

The majority of the Maldives’ debt is owed to regional competitors China and India, which have provided loans of $1.37 billion and $124 million, respectively, as per World Bank data.

Market analysts noted that the bond’s recovery has been influenced by discussions of potential additional support.

These debt challenges arise amid a period of political transition for the archipelago, as voters recently granted President Mohamed Muizzu’s party a decisive victory in an April parliamentary election, a result that is expected to realign the Maldives closer to China and away from its traditional ally, India.