KUALA LUMPUR (Oct 14): Minister of Economy Rafizi Ramli said Malaysia’s better-than-expected economic growth and the strengthening of the ringgit has given more flexibility for the government to achieve its fiscal consolidation targets, which may delay the implementation of RON95 subsidy rationalisation.
Answering questions from the media on whether the plan to pull back the blanket RON95 subsidy will be announced in the upcoming Budget 2025, Rafizi said it was best to wait for the budget announcement and “subsequently the months after that because certain things have changed”.
“With higher economic growth, we have slightly more room to navigate to meet our fiscal glide target.
“The strengthening of the ringgit also means less pressure on subsidy bills,” he told reporters at the sidelines of the launch of the World Bank’s Malaysia Economic Monitor report here on Monday.
“The ultimate objective is to make our public finance a lot more sustainable. And I think we have a few policy options that the government can adopt.
“My view is that so long as this government has more options to navigate, then we will be able to balance these competing priorities better, while at the same time, we will move closer to the fiscal consolidation target,” Rafizi added.
The World Bank last week said that the Malaysian government will have to cut its petrol subsidy expenses by this year, to meet its own fiscal deficit target of 4.3% of gross domestic product (GDP) for 2024, from 5% last year.
The government had in June removed the blanket subsidy on diesel in Peninsular Malaysia, with an aim to save an annual sum of roughly RM4 billion, to be reallocated for other aid programmes.
It has not yet announced the timing of the subsidy rationalisation for RON95, the most widely-used petrol grade currently capped at RM2.05 per litre, but most research houses previously anticipated that the implementation may take place in the second half of 2024.
As of July, the Ministry of Economy said that the government was still studying and reevaluating 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.
Rafizi previously noted that fuel subsidies accounted for 12.3% of the government’s total operating expenditure in 2023, prompting the need for subsidy reform.
Malaysia reported a stronger-than-expected economic growth of 5.1% in the first half of the year, thanks to higher household spending, business investments and exports.
Following this, the World Bank raised its forecast for Malaysia’s GDP growth for 2024 to 4.9%, within the higher end of the government’s official projection of between 4% and 5% this year, after a 3.7% expansion in 2023.
On the other hand, the ringgit is widely perceived as the best performing currency in Asia so far this year. It soared to 4.12 against the greenback at end-September, the strongest level over the past three years, before tapering its gains in the first weeks of October.