The Maldives’ 2025 budget, when placed alongside the 2024 budget, indicates a shift in fiscal strategy. While the earlier budget depended largely on moderate revenue measures and significant subsidy allocations, the upcoming year’s framework appears more ambitious in revenue collection and more selective in spending. Yet the data suggests that these changes, though potentially signalling fiscal reform, come with considerable risks and uncertainties.
Revenue Outlook and Assumptions
In 2024, total revenue and grants were estimated at MVR 34.1 billion, supported mainly by tourism-related taxes and some project-linked grants. Non-tax revenues did not meet expectations, highlighting the difficulties of broadening the government’s income base beyond tourism. Notably, tax growth of 6.7% was described as moderate, reflecting that revenue policies remained relatively unchanged despite ongoing dependency on a single economic sector.
The 2025 budget projects a more pronounced expansion, with total revenue and grants expected at MVR 39.8 billion, a 16.5% increase. This rise is attributed to higher taxes, including increasing the Tourism Goods and Services Tax (TGST) to 17%, as well as stepping up airport-related charges and introducing new fees such as dredging and spectrum charges. The projections also rely on substantial grant inflows, including MVR 1.85 billion in cash grants. While these measures could be interpreted as attempts to diversify and enhance revenue streams, the extent of their impact depends on external factors. Tourism’s stability, traveller willingness to absorb increased fees, and the reliability of promised grants remain open questions. If foreign grants fail to arrive in expected amounts, or tourism demand falls, these revenue targets may not be met.
Expenditure Patterns and Adjustments
On the spending side, the 2024 budget allocated MVR 55 billion, of which 63% was recurrent expenditure, mainly salaries, subsidies, and debt servicing. The government also financed substantial public sector investment projects. Although this approach maintained social and economic activity, it did not significantly reduce spending pressures.
For 2025, total spending is set to increase slightly to MVR 56.6 billion. While overall growth in expenditure is contained to 3%, there are notable internal adjustments. Personnel costs are projected to rise by over 20%, following pay harmonisation and workforce expansion, signalling that the wage bill is not being curtailed. Subsidy outlays, however, are set to shrink; fuel and electricity support is expected to drop by 27.5%, and the health insurance scheme Aasandha by 19%. These reductions indicate a willingness to streamline certain expenditure categories. Yet the concurrent increase in debt servicing (to MVR 9.4 billion) and the expansion of large infrastructure projects still consume considerable resources. These competing trends, reduced subsidies, on the one hand, growing debt costs and a larger public payroll on the other, raise questions about how far structural reforms have actually advanced.
Deficit, Debt, and Fiscal Sustainability
The 2024 fiscal deficit stood at MVR 10.1 billion, or about 7.8% of GDP. In 2025, the deficit is projected to decline to MVR 9.4 billion, representing 5.6% of GDP. Although this is a positive adjustment, it must be viewed in the context of rising public debt, forecast at MVR 150 billion (approximately 124.8% of GDP). Higher borrowing costs and an increased debt burden reduce fiscal space, potentially limiting the government’s options should unexpected shocks occur. Whether the planned revenue increases and spending adjustments can meaningfully shift this trend remains to be seen.
This debt trajectory, coupled with ambitious revenue forecasts, suggests that while the government is making some attempts at reform, it is doing so under tight constraints. Diversifying revenue sources beyond tourism remains challenging, and the continued need to service large debts and maintain a substantial public sector wage bill points to structural issues not yet resolved.
Assessing the Government’s Commitment to Reform
Evaluating the seriousness of the government’s fiscal reforms requires considering both the intent and the plausibility of achieving stated targets. On the one hand, the introduction of new revenue instruments, the reduction of certain subsidies, and the stated aim of bringing down the deficit could be seen as signs of a commitment to improving fiscal health. On the other hand, the reliance on tourism-driven taxes, substantial grants, and rising debt costs casts doubt on how far-reaching and sustainable these reforms can be in practice.
Without diversifying the economy more fundamentally, reducing the dominance of tourism revenue, and addressing long-term expenditure drivers such as public sector wage growth and debt servicing, the current measures may only partially achieve their stated goals. The budget’s outcomes will depend heavily on factors beyond the government’s direct control, including the global economic climate, the stability of tourism markets, and the reliability of donor funding. If these conditions remain favourable, the government may be able to demonstrate true progress. If not, the reforms may prove less durable, revealing that the adjustments were more incremental than transformative.
A More Ambitious Yet Risk-Laden Budget
When set side by side with the 2024 budget, the 2025 plan does show signs of policy recalibration—targeted cuts in subsidies, attempts at revenue diversification, and a marginally narrower deficit. However, the evidence also points to continuing structural vulnerabilities and heavy reliance on external conditions. Whether this budget heralds a serious reform effort or represents only a partial course correction will depend on actual performance in meeting revenue goals, maintaining lower subsidy levels, and managing debt. Ultimately, the seriousness of these reforms can only be tested by how effectively the government navigates the economic uncertainties that lie ahead.
