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Gov't to reduce cost of subsidies in 2024

The Ministry of Finance has revealed that implementing the indirect subsidy reform in mid-2024 would reduce the expenditure on subsidies.

In the state budget for 2024, the finance ministry proposed measures to reduce expenditure, including implementing subsidy reform. As such, indirect subsidy spending is expected to see major changes next year and in the medium term under the reforms proposed in the Fiscal Policy chapter, aiming to achieve fiscal sustainability as part of the government's austerity measures. As such, the budget takes into account the change in expenditure when the government shifts the current indirect subsidies of electricity, fuel, stable foods, and sewerage subsidy to a direct transfer system.

The expenditure on indirect subsidies increased this year compared to the previous year. The increase in electricity subsidy expenditure was due to providing subsidies in advance to manage the cash flow the Fenaka Corporation Limited. The increase in fuel subsidy expenditure was due to the inability to implement the fuel subsidy reform planned for this year, leading to the failure to achieve the savings estimated for this year.

The budget projects a substantial reduction in the expenditure on indirect subsidies from 2025 onwards with the implementation of the indirect subsidy reform by the middle of next year this component in the form of indirect subsidies from 2025 onwards, after the cost of electricity, fuel, stables, and sewerage subsidies fall by about half next year.

The finance ministry stated that fuel subsidies will only be provided to fishermen from 2025 onwards. In addition, the state budget proposes to provide transport subsidies, fishermen subsidies, and waste management subsidies in 2025. The expenditure on transport subsidies is expected to increase with the development of the Raajje Transport Link (RTL) while the expenditure on fishermen subsidies will increase due to the rise in the price of fish. However, the cost is expected to reduce in the medium term with the value addition of fish along with efficient processing methods.

Additionally, a lower budget for the national health insurance scheme Aasandha has been allocated as the ministry expects the expenditure to be lower next year. The ministry allocated USD123 million for Aasandha, which is 13% lower than this year's budget. The ministry has been making efforts to manage the expenditure on Aasandha properly and implement measures to reduce waste.

However, the budget for Aasandha this year exceeded the estimated amount due to the delay in implementing the bulk procurement policy for the importation of medicine. The increase in non-emergency medical treatment after the COVID-19 pandemic has also contributed to the increase in Aasandha expenditure in the past two years.

The proposed state budget for 2024 estimates that the bulk procurement policy will be implemented as part of the Aasandha restructure process. The ministry also expects that the expenditure of Aasandha will be reduced with policies proposed to reduce the excess use of Aasandha services.

The ministry stated that 50% of the expenditure is used for procuring medicine with an average of USD USD39 million spent per year. The ministry stated that the price of imported medicines has increased due to the small population of the Maldives. Therefore, the lack of volume discounts available to importers and the need to import drugs through another party instead of dealing directly with the drug manufacturer due to low import ratio also contribute to higher price of drugs. In order to solve this issue, the government plans to enable all importers to purchase medicines under a pooled procurement system.