The Ministry of Finance has revealed that the current indirect subsidies will be replaced by targeted subsidies starting July 2024.
Starting from July 2024, the government will provide subsidies in the form of monthly payments or direct transfers to those in need and the subsidy system will be determined based on the revenue received by the state, the ministry said. Under the change, a percentage of the previous year’s Tourism Goods and Services Tax (TGST) revenue will be budgeted for subsidy payments and the expenditure on subsidies will be linked to the state’s revenue.
According to the Statement of Fiscal Constraints, subsidies on staples, fuel, electricity and sewerage are currently available to everyone living in the Maldives, including businesses and tourists. As a result, benefits to those who are the actual target of subsidies are relatively small, the ministry said.
With the targeted subsidy system, the change to cost-based pricing rather than cost-reflective pricing will result in higher costs for the public and businesses, the finance ministry said. However, the ministry noted that the financial constraints caused by changes in commodity prices in foreign markets will be reduced and that the introduction of original prices will indirectly facilitate reductions in fuel, and electricity consumption, through behaviour changes. This will reduce the finances needed to import oil and encourage lower electricity consumption, the ministry said.
The change in July will save MVR 599 million in 2024, MVR 1.1 billion in 2025 and MVR 2.5 billion in 2025, the ministry estimated.
The Abdulla Yameen Abdul Gayoom administration had also implemented targeted subsidies in 2016 but reverted to indirect subsidies a year later.
