Spending on subsidies tops total budget by MVR 335mn as reforms gather dust

The government’s spending on subsidies has now gone beyond the total budget allocation for this year by MVR 335 million, as the subsidy reforms announced by the Finance Ministry when the 2025 budget was submitted last year remain unimplemented.

The budget allocation for subsidies this year is MVR 1.8 billion – a figure that has already been exhausted with more than three months left until the end of the year.

The latest weekly fiscal development report released by the Finance Ministry on Sunday shows the government has spent MVR 2.2 billion on subsidies by September 4, which is MVR 335.5 million in excess of the total annual budget allocation.

The Finance Ministry had written a lower figure in the budget for subsidies this year, as it promised to implement a string of reforms aimed at MVR 6.6 billion, including phasing out broad subsidies in favor of targeted subsidies.

However, these reforms have yet to be implemented.

While the spending on subsidies has surpassed the 2025 budget allocation, it is lower by MVR 609.1 million compared to the same period last year, when the government spent MVR 2.8 billion on subsidies.

The major reforms included in the 2025 budget that aimed to save MVR 6.6 billion, other than phasing out broad subsidies in favor of targeted subsidies, included restructuring the Aasandha system, restructuring the pension scheme, and reforming state-owned enterprises (SOEs).

However, these measures have not been implemented, despite urgent appeals by international financial institutions to implement the reform agenda announced by the Maldives in order to alleviate risks of it defaulting on its staggering external debt obligations.

In May, President Dr. Mohamed Muizzu announced that instead of cutting costs by rolling back subsidies and other benefits, his administration plans to cut costs by changing how projects are run and awarding government contracts to SOEs instead of private contractors.

The total expenditure as of September 4 stands at MVR 25.4 billion, with the total revenue and grants at MVR 26.3 billion – marking a surplus of MVR 868.7 million.

While the government insists that it has been spending within its means, it also owes billions in outstanding payments to suppliers.

Other key figures:

• Spending on salaries, wages and pensions continue to rise with MVR 9.6 billion
• Capital expenditure down by MVR 4.5 billion as infrastructure projects remain stalled
• Decline in import duty and business profit tax earnings amid a decline in economic activity
• Only eight percent of projected grants received

The Maldives has been struggling under the weight of staggering external debt obligations, which now stands at 134 percent of the country’s GDP.

The Maldives has a USD 500 million debt repayment due in October, another USD 100 million in November, and a staggering USD 1.1 billion due in mid-2026.

Citing default risks, Moody’s has downgraded Maldives’ credit rating from CAA1 to CAA2, while Fitch downgraded the country’s credit rating from CCC+ to CC. The World Bank has warned the situation makes it harder for the Maldives to secure foreign assistance to alleviate the crisis it faces.