By Uditha Jayasinghe

COLOMBO (Reuters) – The Maldives has "phased out" a brief engagement with U.S. firm Centerview Partners on debt matters and is now focusing on managing debt bilaterally, according to its deputy finance minister.

Dwindling foreign currency reserves have raised fears that the Maldives could become the first country to default on Islamic sovereign debt, with a $500-million sukuk maturing in 2026.

Hassan Miras stated that the government had engaged Centerview to analyze its debt portfolio but is now concentrating on direct discussions with key Indian and Chinese counterparts for debt repayments.

"There have been positive responses from our bilateral partners recently, with China agreeing to refinance past debt," the minister added.

The Maldives has also been in talks with multilateral partners to secure additional funding, with "appropriate fiscal adjustments" expected to be included in the budget set for unveiling in November.

Regarding Centerview, he said, "The focus was on formulating a funding strategy, and the Maldives government engaged them for a period of time and then phased out their services."

Centerview Partners did not immediately comment on the decision.

According to the World Bank, the Maldives' total public and publicly guaranteed debt was $8.2 billion, which is 116% of its GDP, in the first quarter of this year.

About half of this is external debt, with significant amounts owed to regional rivals China and India, which have provided loans totaling $1.37 billion and $124 million, respectively.

Both countries have recently shown support to the Maldives, alleviating investor worries regarding a debt crisis and aiding in bolstering its international bonds.

Beijing signed a financial cooperation agreement with the Maldives in September to enhance trade and investment.

Last month, India subscribed to a $50-million Maldives Treasury bill and announced this month that it approved currency swap deals exceeding $750 million.

However, Fitch Ratings warned this week that "without radical policy measures, pressures are likely to persist over the medium term."

The report added that the swaps are repayable and do not resolve the fundamental issues of high and rising public debt, alongside low foreign reserves and a hard peg to the U.S. dollar.