Government subsidies have long played a crucial role in supporting households and mitigating the impact of economic pressures on vulnerable communities. However, as fiscal challenges intensify and the need for more efficient resource allocation grows, a strategic shift in subsidy policy is taking centre stage. The transition from the 2024 to 2025 budgets reveals a marked change in approach, moving from broad, generalised support towards more targeted measures.
A Glance Back at 2024
In 2024, the government allocated approximately MVR 3.5 billion in subsidies, encompassing a wide range of areas. These included substantial support for fuel and electricity, as well as allocations for waste management and basic food supplies. While the intention was to shield households from rising living costs, these measures were largely untargeted, benefiting a broad cross-section of the population. The continued reliance on generalised subsidies, coupled with escalating global energy prices, created additional fiscal burdens and delayed much-needed reforms.
Entering the 2025 Budgetary Landscape
The 2025 budget introduces a decisive policy shift. Subsidies are set to be reduced by nearly 27.5%; rather than simply implementing cuts, the government is recalibrating its approach with the aim of improving both efficiency and sustainability.
At the heart of this new strategy is the introduction of targeted direct cash transfers, with MVR 900 million earmarked specifically for this purpose. By moving away from broad-based subsidies and delivering support directly to households in genuine need, the government hopes to ensure that the most vulnerable citizens receive effective assistance without overburdening the public purse.
Reprioritising Key Sectors
Fuel and electricity, previously among the largest recipients of subsidies, will see substantial reductions. Likewise, allocations for food-related subsidies will be scaled back. While these changes may appear abrupt, they form part of a broader endeavour to streamline public expenditure and reinforce fiscal resilience.
Balancing Efficiency with Equity
Though the 2025 budget’s reforms promise long-term benefits, the transition to targeted subsidies must be handled with exceptional care. Identifying the right beneficiaries, establishing transparent distribution mechanisms, and monitoring the delivery of cash transfers all require robust institutional capabilities. This is where concerns arise.
The current administration, based on its performance in its first year, could be described as “a government with training wheels.” The lack of well-honed administrative capacity raises doubts about its ability to execute direct transfers effectively. Without the necessary infrastructural strength, logistical planning, and data management systems, targeted subsidies may not reach those in need in a timely or fair manner. In an environment where every misstep can erode public trust, this is no trivial point.
Overcoming Administrative Hurdles
The move from generalised subsidies to targeted transfers is a theoretically sound strategy, but its success hinges on practical implementation. Ensuring the intended recipients do not fall through bureaucratic cracks is crucial. Policymakers must recognise that placing vulnerable groups at the heart of subsidy design means nothing if the delivery mechanisms themselves are not fit for purpose.
Put simply, this policy shift presents an opportunity to enhance both fiscal integrity and social welfare. However, to harness its full potential, the government must rapidly build its operational capacity, embrace technology for streamlined distribution, and engage closely with civil society and local communities to ensure transparency and accountability.
The evolution from 2024’s broad allocation of subsidies to 2025’s more focused system of direct cash transfers illustrates a measured but challenging response to fiscal and social pressures. While the intention is commendable, questions remain over whether this still-maturing administration can deliver the nuanced support mechanisms that vulnerable households require. The ultimate success of these reforms will depend not only on the strategy’s design but also on how capably it is executed.
