Reflections- Elimination of Food Subsidy

Salam, 11 Dec 2017

Reflections- Eliminination of Food Subsidy

Ibrahim Athif Shakoor

{Published on 1st October 2016 on}

On the evening of the 29th of September 2016, Deputy Minister of the Economic Ministry, Adam Thowfeeq announced that effective from 1st October, government will limit food subsidy; which were hitherto offered to all and sundry, only to the vulnerable and needy parties. 

This elimination is in line with the national budget for 2016, which was passed with a 45% reduction of subsidy on electricity and food subsidies by budgeting only 183 million in food subsidies in 2016, down from around 300 million in previous years.

On a macro level, expenditure has been exploding year on year doubling within a decade from a projected 8 billion in 2007 to 16 billion in 2016 with revenue being unable to keep pace. Meanwhile, 2016 is proving to be a difficult year, with anticipated revenue shortfalls and increased expenditure. Important economic sectors like Tourism and Fisheries are not performing as anticipated and the government has just reduced tourism targets from 1.5 million down to 1.4 million arrivals. In other words, fiscal adjustments need to be made post -haste. 

There is no doubt that subsidies should be offered to the vulnerable and to the needy. The practice of offering food and electricity subsidies on a wholesale basis to all consumers, including visitors to our shores, expatriate workers and to the rich and wealthy is an outrage and an affront to common sense. Therefore, finally taking the decision to limit state subsidies only to the needy and to the vulnerable is a laudable decision and one that has been repeatedly called for by internal and external stakeholders including the World Bank and the IMF.

At the same time, eliminating subsidies is a ‘courageous’ decision and governments; whether locally here in the Maldives, regionally or even in the developed world, has normally shirked away from ‘courageous’ decisions.

Therefore, the decision to eliminate subsidies and offer them only to the vulnerable and the needy is a praiseworthy decision which should have been implemented some time back, but have been successfully ignored by successful governments.

Having made the point, let me also outline some areas of concern, about the way, the process in which the process is being implemented.

1.      There should be a transparent and known criterion on deciding who are the ‘vulnerable and the needy’.
The process of applying for subsidies are stated in the National Gazette of March 29  and the criteria to receive subsidies set out in Clause 7. Clause 7 states that (a) the recipient has to be a Maldivian and (b) must conform to the criteria set out by the Agency. However, and this a quite large, however, this criterion is yet to be publicly known.
Clause 4, of the process states that NSPA should maintain a register of people who will be eligible for subsidies. This register, if it has been prepared, has not been made public and there is no news of people who have been included in the register.

A transparent and clear set of criteria should, therefore, be publicly announced and well publicized to allow people to apply with knowledge about eligibility.

2.      The period of notice is too narrow
Food subsidy has been a fact of Maldivian for such a long time that it has almost been part of Maldivian culture. In 2015 too, government had budgeted for a 40% reduction in the food and electricity subsidies, however the year ended with marginally higher expenditure on food subsidies. While the government has been stating that subsidy will be eliminated and the process published on March 29, people have not taken it seriously. While this is perhaps not right, spending and saving decisions, for the short and medium term has been made with this ‘fact’ of subsidy in mind. Meanwhile, it has been publicly admitted by the Head of NSPA that only a few forms to apply for the subsidy had, so far been received by NSPA.

The formal elimination of subsidy was announced on the evening of 29th; a Thursday to be made effective from Saturday morning. A longer time frame for people to adjust and to apply for the subsidy, would therefore, have been more welcome.

3.      The amount of subsidy stated in Clause 9 and 10 looks to be misaligned to the announced price hike.
The amount of subsidy as gazetted is 40 Rf /person and a household is eligible for a maximum of 240 Rf/month (perhaps on the basis of 6 person per household as reflecting an average household size 5.9 stated in national statistics).

However, food prices have risen by a 100% for both flour and rice; the basic staples and by 77% for sugar. Because both flour and rice have doubled in price, other things remaining the same, expenses for both essential food items will now double and individual expenditure for basic food items are now estimated at almost double the 40Rf stated in the gazette.

However, other things will not remain the same. Prices of other items too, will increase to reflect the costs (food and provisions for labor) involved in every business and to account for recently announced fuel surcharge on the electricity bill. 

Therefore, it is perhaps important that the state re-evaluate the subsidy amounts stated in Clause 9 and 10.

4.      Awareness need to be raised of the importance of submitting the necessary forms.
The vulnerable and needy, who are entitled for the subsidy, need to submit a 4 page form to the NSPA or to an office announced by the NSPA. The ‘vulnerable and the needy’ are, as clearly known, the kind of people who find it most challenging to submit such forms. NSPA therefore, in keeping with the mandate of the agency, need to make the target audience aware of this fact and assist in the process. This is more so important because only a few forms have so far been received, as publicly admitted.

5.      A more convenient method of receiving the subsidy may need to be adopted
Clause 11 states that the subsidy will be paid to the bank account of the recipient. The vulnerable and needy, needless to state, will find this extremely burdensome and might, in extreme cases, result in the most vulnerable being unable to receive their subsidy.

Therefore, it is important the NSPA adopt a more flexible and convenient method for the vulnerable and the needy to receive their subsidy.

There is bound to be much ‘sound and fury’ expended over the elimination of the subsidy that all of us- I refer here not only to Maldivians, but to anybody who resided, lived, or visited us here in the Maldives- have used and abused.

It is time to eliminate the whole-sale method and target it only to the vulnerable and the needy. In fact, it is long overdue. But let’s take a little bit more patience and do it right.

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