President Dr Mohamed Muizzu asked the speaker to propose a 10 percent pay cut for  judges, lawmakers and heads of independent commissions.

The reductions will last for two years. It applies to senior officials of independent bodies who earn a basic salary in excess of MVR 12,000 (US$ 778), according to a January 15 letter from the president, which was introduced to the floor yesterday as the Majlis reconvened after recess. 

Similar cuts for political appointees and employees of state-owned enterprises together with pay caps for company bosses were announced last year. But austerity measures devised a year ago have yet to be enacted as the government struggles to balance political sensitivity against economic necessity.

"Despite the government's announcement of a homegrown fiscal reform agenda in February 2024, the policies are yet to be endorsed and implemented," the World Bank observed in October. "Implementing these reforms is key to easing current liquidity pressures and bringing the budget closer to balance."

A package of tax hikes approved in December focused primarily on the tourism sector. The green tax and airport charges for most tourists were doubled, prompting industry concerns over competitiveness and advance bookings. A one percent rise in the tourism sales tax is due to come into force in June. 

But the government baulked at painful spending cuts. Most policies that affect the public were pushed back, including streamlining costly universal healthcare and phasing out blanket subsidies for fuel, electricity, food, and sanitation.

Tough choices lie ahead with looming debt payments of up to US$ 700 million this year followed by a staggering US$ 1 billion in 2026. 

In December, Moody’s maintained the Maldives’ credit rating downgrade. Despite a bailout from India and new foreign exchange controls, Moody’s confirmed a negative outlook, casting doubt over the ability to meet the substantial debt obligations with usable reserves of US$ 63 million at the end of 2024.

“Despite near-term respite from the swap with India, downward risks persist in the absence of a comprehensive financing package,” the rating agency concluded. “Twin deficits will likely remain wide over the next 1-2 years, which will continue to drive sizeable external liquidity needs and, in the absence of sizeable inflows, erode already limited FX resources.”