The World Bank’s recent report, “Maldives Development Update – Seeking Stability in Turbulent Times,” reveals that the wealthiest in the Maldives benefit disproportionately from the country’s universal subsidy system. The report discusses the effects of government spending cuts and subsidy adjustments, noting that while subsidies in many countries are typically directed toward low-income households, the Maldives’ current approach fails to adequately support its most vulnerable populations.
According to the World Bank, government revenues are allocated to various subsidies aimed at providing essential services, including education, the Aasandha program for all citizens, and fuel and food subsidies through State Trading Organization (STO). However, these subsidies are not specifically designed to target those in greatest need.
The report highlights that about 43% of subsidies go to the wealthiest segments of society, benefiting the richest 40%. This represents 4.1% of the national budget. Notably, the top 10% of earners receive 13% of these subsidies, which accounts for only 2% of their income, while the bottom 10% receive a mere 8%.
The World Bank emphasizes the government’s intention to shift from a blanket subsidy approach to one that specifically aids the most vulnerable groups. Without such a reform, the poverty rate in the Maldives could rise from 2.5% to 4.6% if subsidies were eliminated altogether, with single parents and families with more than three children being particularly impacted.
To mitigate the effects of subsidy cuts, the World Bank estimates that a budget of USD 78.2 million will be required. It recommends that subsidies be allocated to 60% of low-income households, suggesting an increase in support for the lowest income earners to 20%. Furthermore, the report stresses the need for the government to implement a comprehensive system to accurately assess household income and monitor living conditions effectively.