Maldives exhausts budget for subsidies and loan repayments, with four months remaining

The Maldives has exhausted its annual budget for subsidies and loan repayments, with four months remaining until the end of the year.

The latest weekly fiscal development report released by the Finance Ministry shows the government spent MVR 6.11 billion on grants, contributions and subsidies as of August 28. Total MVR 8.61 billion was allocated in the 2025 budget for these areas, the bulk of which is towards the public health insurance scheme Aasandha and subsidies.

Both Aasandha and subsidies are areas where the actual spending has persistently surpassed budgeted figures. The incumbent People’s National Congress (PNC) administration has implemented measures to reform the public health insurance system, including introducing a bulk procurement policy for import of medicine and revising prices – a move that the Finance Ministry says has helped lower the prices of 10 types of medicine.

But despite these measures, the spending on Aasandha has now hit MVR 1.32 billion – which is 71 percent of the budgeted MVR 1.85 billion. It is also 17 percent higher than the spending during the same period last year.

Meanwhile, the spending on subsidies has now hit MVR 2.05 billion, which is 10 percent higher than the budgeted MVR 1.86 billion.

While the PNC administration had included major reforms in its 2025 budget. These measures, which included restructuring the Aasandha system, restructuring the pension scheme, reforming state-owned enterprises (SOEs), and phasing out broad subsidies in favor of targeted subsidies, aimed at saving MVR 6.6 billion.

However, these measures have not been implemented, despite urgent appeals by international financial institutions to implement the reform agenda announced by the Maldives in order to alleviate risks of it defaulting on its staggering external debt obligations.

In May, President Dr. Mohamed Muizzu announced that instead of cutting costs by rolling back subsidies and other benefits, his administration plans to cut costs by changing how projects are run and awarding government contracts to SOEs instead of private contractors.

As Maldives struggles with staggering external debt obligations, the numbers also show the government has already spent beyond the budgeted figure on loan repayments. The government has already spent MVR 3.95 billion on loan repayments – surpassing the budgeted figure of MVR 3.87 billion.

The spending on salaries, wages and pensions has also increased, with the figure now at MVR 9.42 billion, compared to the MVR 8.95 billion during the same period last year. Spending on salaries alone show a 5 percent increase.

The Maldives has a USD 500 million debt repayment due in October, another one in November, and a staggering USD 1.1 billion (MVR 15 billion) due in mid-2026.

Citing default risks, Moody’s has downgraded Maldives’ credit rating from CAA1 to CAA2, while Fitch downgraded the country’s credit rating from CCC+ to CC. The World Bank has warned the situation makes it harder for the Maldives to secure foreign assistance to alleviate the crisis it faces.