Economic impact of sudden tobacco price hikes persists a year later

The central bank, Maldives Monetary Authority (MMA) has revealed that tobacco prices in the Maldives skyrocketed by 135.3 percent by the third quarter of 2025, following a drastic decision by the government to raise prices.

This price hike was triggered by an increase in import duties, implemented through amendments to the Import-Export Act, which came into effect in November 2024.

As tobacco prices hit unprecedented levels, an illicit cigarette trade has flourished within the country. This black market surge has caused a significant drop in state revenue from import duties, which is now far below initial projections for the current fiscal year. The government had estimated a revenue of MVR 4.6 billion, yet only MVR 2.9 billion has been collected so far.

Amid this revenue shortfall, the current administration of President Dr. Mohamed Muizzu signed a Free Trade Agreement (FTA) with China, aimed at boosting economic growth. However, under the agreement, Maldives no longer collects import duties on several categories of goods from China that had previously contributed to state revenue.

On the inflation front, the government projects an average inflation rate of 4.1 percent by the end of 2025. This marks a sharp rise from the 1.4 percent recorded in 2024 and exceeds the 3.9 percent inflation rate initially forecasted in last year's budget.

The tobacco tax hikes are widely considered a key factor behind the rising cost of living and the depreciation of the Maldivian Rufiyaa.