Govt must cut RON95 subsidy by July to meet target, says bank

PUTRAJAYA must cut the subsidy for RON95 petrol as soon as possible achieve the targeted savings in Budget 2024.

Maybank Investment Bank said the government must raise the price of RON95 by 32 sen per litre starting July 1.

“An increase of 10 sen per litre for RON95 petrol can save the government RM2.5 billion in subsidies for a full year, assuming the increase is offset by monthly cash assistance to eligible recipients under targeted subsidies such as that for diesel," said Suhaimi Ilias, chief economist at the investment bank.

“Hence, a simulation made by the investment bank indicates that the price of RON95 petrol would need to be increased by 32 sen, or 15.6%, to RM2.37 per litre starting July 1 to achieve the RM4.1 billion savings needed to meet the RM11.5 billion target."

Should the government act slower, the price of RON95 petrol would have to be raised higher to achieve the 2024 savings target because of the shorter timeframe, Suhaimi added.

He said should the price be raised on October 1 instead, the price of the petrol would have to be raised by 65 sen, or 31.7%, to RM2.70 per litr.

“The sooner this happens, the lesser the price increase needed, if the aim is to meet the targeted savings set for this year in Budget 2024,” he said.

The government has removed the blanket subsidy for diesel, raising the price to RM3.35 per litre as of June 10.

In Budget 2024, Putrajaya targets savings of RM11.5 billion on its subsidy expenditure.

So far, the government has achieved savings of RM7.4 billion, RM4 billion of it from electricity tariff adjustments and RM1.2 billion from the elimination of chicken subsidies.

Suhaimi said a further reduction of RM2.2 billion is projected from the targeted subsidy of diesel, and RM4 billion in savings could be achieved from fuel rationalisation in a full year.

Suhaimi said the introduction of targeted subsidies for RON95 petrol is ultimately a “political decision,” and that the government has the final say on the actual quantum and timing of the price adjustment. – June 11, 2024.