Overspending on subsidies tops MVR 1.37bn amid global fuel price hike

The state has now spent an excess of over MVR 1.37 billion on subsidies, having exhausted its annual budget allocation for it around mid-way into the year.

According to the latest weekly fiscal report released by the Finance Ministry, the state’s spending on subsidies reached MVR 4.26 billion as of October 8.

This marks an excess of MVR 1.37 billion or 47.57 percent compared to the MVR 2.89 billion allocated in the budget for subsidies for the entire year.

It also marks a 71.84 percent increase compared to the same period last year, when spending on subsidies stood at MVR 2.48 billion.

Meanwhile, spending on Aasandha rose by 23.6 percent to MVR 1.91 billion.

Utilities alone are heavily subsidized in the Maldives, and the increase in spending on subsidies is likely linked the rise in global fuel prices with the Strait of Hormuz effectively closed due to the US-Israeli war on Iran.

However, Aasandha and subsidies are areas where the actual spending has persistently surpassed budgeted figures with each passing year.

Back in 2025, the Parliament had approved a budget allocation of MVR 1.86 billion on subsidies, but the actual spending by the end of the year rose to MVR 3.45 billion.

International financial institutions have been urging the Maldives for years to shift to targeted subsidies and implement other reforms in order to alleviate risks of it defaulting on its staggering external debt obligations.

President Dr. Mohamed Muizzu administration had included major reforms in its 2025 budget, including phasing out broad subsidies in favor of targeted subsidies.

However, halfway into the year, he decided against implementing these reforms, citing that he did not wish to deprive the people of any benefit they enjoy.

The Maldives is a small island nation almost entirely dependent on imports, marking it particularly vulnerable to global shocks, including the ongoing conflict in the Middle East.

Information released by the Environment Ministry back in May shows the Middle East conflict has driven the cost of the country’s monthly fuel imports from USD 50 million to USD 116 million – marking an increase of 132 percent.

The country needs 8,000 barrels of diesel daily or around 2.9 million barrels yearly to produce electricity.

The small island nation spent around MVR 10 million on fuel imports last year alone.

The Asian Development Bank (ADB) projects Maldives’ inflation will rise by 2.2 percent this year, and 2 percent next year.