The Ministry of Finance has announced a significant reduction in state expenditure on the national health insurance scheme Aasandha and subsidies.
The current administration began enforcing measures to cut public spending in response to poor policies of previous governments which had plunged the state into a significant amount of debt, jeorpardising the economy. Implementing the Aasandha and subsidy system without strong policies had led to a significant increase in government spending and debt, prompting international financial institutions to urge the Maldives to adopt policy reforms.
However, until now, no significant action had been taken to tackle the issue as recommended. In contrast, the government spending skyrocketed over the years to the point that the previous government had to resort to printing money to manage its finances. This, in turn, led to an increase in demand for foreign currency and caused commodity prices to soar.
Faced with an economy on the brink of bankruptcy, President Dr Mohamed Muizzu took office in November 2023 with an ambitious pledge to reduce expenditure and boost revenue. From his first day of office, the President has directed the administration to operate as per policies that aligned with these pledges.
One of the most significant spending reductions has been observed in the subsidy system. According to official statistics, the expenditure on subsidies had increased year-on-year under previous administrations. However, for the first time in years, the current administration is on track to reverse the trend.
While the former government spent 4.4 per cent more on subsidies in 2023 compared to 2022, the current administration’s new measures has seen a 3.6 per cent decrease in subsidy spending so this year, compared to 2023 figures. While the subsidy expenditure was at USD 243 million in 2023, this figure has now reduced to USD 234 million in the same period this year.
In addition to subsidy expenditure, expenditure on Aasandha has also declined. The current figures for this year show Aasandha spending decreased by 0.3 per cent this year compared to the same period last year. The primary reason for this reduction includes the government taking control of drug prices, and the implementation of strong measures to minimise wastage within the Aasandha system.
While measures are already in place to reduce spending, the government plans to further reduce subsidy costs by shifting from the current universal subsidy concept to a more targeted approach, where subsidies will be redirected to only the most vulnerable members of the community. Minister of Finance Moosa Zameer had previously revealed that the changes will be implemented in phases, in such a way that it does not place undue burden the people.