MMA recommends replacing blanket electricity subsidies with targeted assistance

The Maldives Monetary Authority (MMA) has recommended replacing blanket electricity subsidies with a targeted system for eligible beneficiaries, warning that rising international fuel prices could increase government expenditure and place additional pressure on foreign currency reserves.

In its opinion on the proposed 2027 State Budget, MMA noted that although expenditure on fuel and electricity subsidies is projected to decline next year, uncertainty surrounding developments in the Middle East and the possibility of higher international oil prices continue to pose risks.

The central bank warned that rising oil prices could increase expenditure on electricity and fuel subsidies while raising the foreign currency required for fuel imports, placing additional pressure on the country's official reserves and increasing financing requirements.

To address these risks, MMA recommended reviewing the existing blanket electricity subsidy arrangement and introducing a targeted system that directs assistance towards eligible beneficiaries.

The Authority also recommended considering fuel-price hedging arrangements to reduce exposure to fluctuations in international oil prices.

The recommendation follows earlier government plans to reform the subsidy system that were not implemented.

The 2025 State Budget proposed replacing indirect subsidies for electricity, fuel, staple food and sewerage services with targeted direct cash transfers. However, in May 2025, the government announced that it would not proceed with the proposed changes.

A September 2025 performance audit by the Auditor General's Office subsequently noted that it remained unclear whether the reforms had been postponed or cancelled entirely.

The Ministry of Finance and Public Enterprises also acknowledged the financial implications of delayed reforms in its 2026 Budget Book. The estimated expenditure on indirect subsidies for 2025 was revised from MVR 1.99 billion to MVR 4.94 billion, reflecting delayed reforms and the expansion of subsidies.

Meanwhile, presenting the proposed 2027 budget to Parliament on 29 October, Finance Minister Hassan Zareer said expenditure on fuel subsidies intended to maintain affordable electricity was expected to reach MVR 3.8 billion by the end of 2026.

The government projects this expenditure to decline to MVR 3.2 billion in 2027, based on forecasts of lower international oil prices.

The government has also sought to reduce electricity costs for households. In May 2025, President Dr Mohamed Muizzu announced a reduction in domestic electricity tariffs and reaffirmed the administration's commitment to maintaining affordable electricity.

Alongside subsidy reform, MMA recommended accelerating planned renewable energy projects to reduce government expenditure and the country's dependence on imported fuel.