Eliminating indirect subsidies and shifting to targeted or direct subsidies to those in need was included the budget proposed for next year with the consent of the incoming government, the Finance Ministry has said.
The 2024 budget proposes the end of the universal subsidy policy from July onward, including blanket subsidies for electricity, fuel, staple foodstuff and sewerage services.
After eliminating the subsidies, the government proposed changing to a policy of direct money transfers to low-income households.
Injecting funds as subsidies to state-owned enterprises would also come to an end.
As the policy change would directly affect the public and businesses, the incoming government's approval was confirmed by the Finance Ministry's Chief Financial Budget Executive Ahmed Saruvash Adam.
At a press briefing about the budget, Saruvash said budget allocations were made after consultations with President-Elect Dr. Mohamed Muizzu's special transitional committee on economic and financial affairs.
According to the budget, expenditure on the four subsidies to cease next year would be halved.
Government spending on subsidies would be even more substantially reduced in 2025, the Finance Ministry estimated.
The only expenditure on an indirect subsidy at that point would be the fuel subsidy for fishing boats.
The shift to targeted subsidies is an important step that the government has decided to take to cut costs.
In order to mitigate the impact on the public, the government plans to introduce a targeted basic income mechanism.
To introduce the new system, MVR 600 million was allocated in the budget to be disbursed by the National Social Protection Agency (NSPA).
Aside from the wealthiest individuals, the targeted basic income system would benefit a large segment of the population, the Finance Ministry said.
Saruvash said 65 percent of the Maldivian population or 50 percent of households would benefit from the change.
However, the eligibility criteria for financial assistance and the amount of money to be provided have not yet been decided.
Saruvash said the Finance Ministry has proposed depositing funds through NSPA after determining an amount per head based on the number of people living in a household.
Reforming subsidies has been a longstanding recommendation of international financial institutions.
Alarming levels of spending on subsidies is at the top of a list of the biggest risks facing the country's finances.
