KUALA LUMPUR (July 15): The Asean+3 Macroeconomic Research Office (Amro) said a phased implementation of the RON95 petrol subsidy rationalisation with effective communications is recommended to avoid significant inflationary shocks and allow for policy impact assessment.

Amro said the RON95 petrol subsidy will yield “substantial fiscal savings” for the government, it said in a statement on Monday.  

The government has not yet announced the timing for the subsidy rationalisation, but most research houses anticipate the implementation may take place in the second half of 2024 (2H2024).

On July 12, the Ministry of Economy said the government is still studying and re-evaluating the subsidies and assistance provided to the people, including for RON95. The proposed implementation will be “fine-tuned from all aspects” to ensure smooth execution and increased effectiveness of aid distribution.

Amro noted that major tax reforms, such as the reintroduction of the goods and services tax (GST), are crucial for achieving fiscal sustainability over the medium and long term.

“The recent enactment of the Public Finance and Fiscal Responsibility Act is much welcomed, and the authorities are encouraged to expedite the tabling of the Government Procurement Act,” it said.

Meanwhile, Amro said that while foreign exchange interventions may be needed during periods of excessive volatility, the central bank should continue to build up its foreign reserves when market conditions allow.

“Amro commends Bank Negara Malaysia’s commitment to a flexible exchange rate and its efforts to maintain orderly market functioning through market-friendly measures, alongside clear and consistent communication. These measures include coordinating with GLCs (government-linked companies) and GLICs (government-linked investment companies) as well as piloting a fast-track pre-approval reinvestment framework for corporates to encourage repatriation and conversion of foreign earnings,” it added.

Amro also pointed out the need for structural reforms to address long-term challenges, such as inadequate research and development spending, innovation, and skill and talent shortages.

It said these reforms should be accelerated to enable industrial upgrading and support Malaysia’s ambition to move up the global manufacturing value chain.

“Comprehensive reforms are required to improve labour productivity, raise wages, expand pension coverage to the rest of the working population, and improve the adequacy of retirement savings amid an ageing population,” Amro added.