KUALA LUMPUR (July 23): Malaysia’s budget deficit target of 4.3% for 2024 could still be achievable even if the subsidy rationalisation for RON95 petrol were to be postponed to next year, according to Maybank Investment Bank (Maybank IB) chief economist Suhaimi Ilias.
“It is still possible, especially [with Malaysia’s] economic growth this year,” Suhaimi told a virtual media briefing on Malaysia’s outlook for the second half of 2024 (2HFY2024), noting the potential of Petroliam Nasional Bhd (Petronas) declaring a special dividend.
Suhaimi commented that stronger-than-expected economic growth could narrow the fiscal gap further this year, and that a special dividend from the national oil firm would come in handy to fund the government’s expenditures, which could in turn narrow the fiscal deficit.
Previously, Maybank IB had estimated that if the government implemented the targeted RON95 petrol subsidy cut on July 1 by raising the pump price by 32 sen (15.6%) per litre, it would be able to achieve RM4.1 billion in savings.
Based on Petronas’ annual reports, it had paid the federal government RM40 billion in dividend for the financial year ended Dec 31, 2023 (FY2023), which was lower than the RM50 billion paid in FY2022. Meanwhile, the national oil firm had said in March that it had approved a dividend payment of RM32 billion to the government for FY2024.
For 2024, Bank Negara Malaysia sees Malaysia's GDP growth at the 4%-5% range, higher than the 3.7% recorded in 2023. The country saw faster-than-expected growth estimates of 5.8% in 2Q, resulting in 1H2024 growth seen at 5%. Malaysia's GDP grew 4.2% in the first quarter.
The government in June removed subsidies on diesel in Peninsular Malaysia, with aims of re-targeting an annual sum of roughly RM4 billion for other aid programmes.
Maybank IB, which currently forecasts Malaysia’s headline inflation averaging at 2.4% in 2024 and 3% in 2025, said its inflation projection could lower to 2.1% if the subsidy rationalisation for RON95 petrol is delayed to next year, Suhaimi said.
On Monday, Prime Minister Datuk Seri Anwar Ibrahim was quoted by the media as saying that a decision has not been made for RON95's subsidy rationalisation.
Read also:
Petronas posts lower FY2023 earnings as 4Q profit drops 32%, plans RM32b dividend for FY2024
Diesel price increases by RM1.20 to RM3.35 per litre in peninsula, from Monday — Finance Minister II
Amir Hamzah: Priority now diesel, govt to decide RON95’s subsidy rationalisation later
Diesel subsidy rationalisation a step in the right direction, economists say
No policy paper yet on slashing RON95 subsidies, says Anwar
Advance notice of subsidy cuts could lead to price hikes, Rafizi argues
Amro: Phased implementation of RON95 subsidy rationalisation with effective communications needed to avoid large inflationary shocks
Diesel retail sales dropped 30% for the first week after announcement on retargeting of subsidy — Amir Hamzah
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