PUTRAJAYA (Aug 21): The government is looking to rationalise subsidies on petrol and sugar following recent cuts in diesel subsidies, said Nurhisham Hussein, the senior director of economics and finance at the Prime Minister’s Office (PMO).
Total fossil fuels cost the Malaysian economy RM220 billion a year, including both direct and indirect costs, he said, citing the International Monetary Fund’s estimates. Congestion, environmental damage, and climate change have much greater impact on the economy than the subsidies themselves, he noted.
“The economic argument for winding down fuel subsidies is very strong,” Nurhisham said at a virtual webinar on bonds on Wednesday morning. “So, it is more of a case of how and when.”
Malaysia has been trying to shrink a long-running fiscal deficit that stretches back to the 1998 Asian Financial Crisis. This year, the government is targeting to narrow its budget gap as a proportion of economic output to 4.3% from 5% last year.
The key is removing subsidies on fuel, which has been widely panned by economists for being wasteful. Malaysia has recently removed a blanket subsidy on diesel, and the rationalisation for RON95, the most widely used petrol variant currently capped at RM2.05 per litre, is also expected to follow suit.
Several other items are up for review, including electricity tariffs for July to December 2024, the ceiling price of local white rice by October, and other essential items such as sugar.
“The government is committed to achieving medium-term reduction goals for the deficit,” Nurhisham said. “Right now, it is about timing, and how much.”
Any cuts in subsidies would reportedly help to lower Malaysia’s operating expenditure currently financed by revenue. Under Malaysia’s fiscal rules, any government borrowings to cover the budget shortfall are only to finance development expenditure.
“It is more of redirecting to areas that are more impactful to the people like healthcare and education,” Nurhisham added.