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Government hikes food and electricity prices

Shops across the Maldives reported running out of food staples on Friday as customers rushed to buy rice, flour and sugar following an abrupt announcement by the government that it plans to cut food subsidies starting on Saturday



Shops across the Maldives reported running out of food staples on Friday as customers rushed to buy rice, flour and sugar following an abrupt announcement by the government that it plans to hike food prices effective Saturday.

Some shops were not selling staples, while others put a limit on kilos per customer, local media report.

The controlled prices for rice, flour and sugar is set to double on October 1, with a kilo of rice, which previously cost MVR3.98 to be sold at MVR7.96. A kilo of sugar which cost MVR4.5 will now cost MVR8, and flour sold at MVR3.5 per kilo will now be sold for MVR5.96.

The economic ministry said the hike was set “because we have noticed that a majority of those who benefit from food subsidies are not its rightful beneficiaries.”

Adam Thaufeeq, a deputy minister at the economic ministry, told newspaper Mihaaru that more than 60percent of the subsidy’s beneficiaries were migrant workers.

The government spends some MVR300million (US$19.5million) on food subsidies every year, the economic ministry said in a statement. “We were previously selling staples at reduced prices between 25-30 percent previously.”

Poor Maldivians will receive cash handouts to buy food through the National Social Protection Agency, Adam said.

According to rules published by the NSPA in March, individuals and households classified as needy are entitled to food subsidies of MVR40 (US$2.6) and MVR240 (US$15.6) per month, respectively. The criteria used by NSPA to measure poverty is not clear.

Sun Online said shops in Malé including major supermarkets have run out of staples, and Raajje TV reported long queues outside shops in the atolls and rationing in southern Addu City.

The State Trading Organisation, which imports and distributes the majority of staples at prices set by the government, said there is no shortage.

The announcement has caused outrage as it comes in the wake of a hike in electricity prices. The state utility company said Wednesday that it will impose a fuel surcharge of MVR0.04 on each unit of electricity starting in October.

The government had cut subsidies for electricity and set new tariff rates and rules on fuel surcharges in January, claiming the move would save some MVR700million (US$45.4million) from recurrent expenses.

In Malé, fuel surcharges are set if the price of diesel goes beyond the base rate of MVR8 per litre. The base rates for the atolls is 10.75 per litre. MVR0.03 will be charged for each increase in MVR0.10 per litre.

According to newspaper Mihaaru, the price of a litre of diesel now stands at MVR8.12.

Targeting electricity and food subsidies has been a longstanding recommendation of the International Monetary Fund and the World Bank. Other recommendations also include control of the public sector wage bill.

The finance ministry has meanwhile announced a host of austerity measures to rein in a ballooning budget deficit. These include cuts to travel budgets, a freeze on appointments and an order to close government offices by 2:30pm.

The government has struggled to meet ambitious revenue targets amid a slowdown in the tourism sector. It predicts a deficit of MVR3.4billion (US$220million) or 6 percent of GDP, but the World Bank believes the figure could be as high as 13.3 percent.