KUALA LUMPUR – Now is not the time for the government to even consider plans to rationalise fuel subsidies as Malaysians continue to reel from soaring prices of goods and services due to inflationary pressures.
Independent economist Prof Zakariah Abdul Rashid said while there is a need for the government to ensure a more efficient economy post-pandemic, priority should be given to the wellbeing of the rakyat.
He warned that the removal of subsidy for RON95 fuel now could have disastrous repercussions on the public, as many are only beginning to get back on their feet.
“In my view, the current internal and external developments are very challenging. That’s why I believe the government should hold off on plans to rationalise fuel subsidies,” he told The Vibes.
“We are seeing strict Covid-19 policies in China, the wheat export ban by India, and the Russia-Ukraine geopolitical tension, among others, and these are leading to disruptions in the supply chain.
Our ringgit is also depreciating, and this is another element of inflation. If the fuel subsidy is removed on the back of high inflation, the people’s purchasing power will diminish,” he said, adding that the recent increase in the overnight policy rate by 25 basis points will also affect consumer spending.
Today, Bernama reported that International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali said in a press conference that the government is likely to introduce a targeted fuel mechanism to cushion the impact of the rising crude oil prices, especially for the lower-income group.
He said the government is still working on a suitable structure following the sharp jump in the projected fuel subsidy cost this year to RM28 billion, compared to RM11 billion last year.
“Those with BMWs cannot enjoy the same subsidies as those with Kancils,” he said.
On March 26, The Vibes had quoted sources as saying that the Malaysia Productivity Corporation (MPC) is pushing for the rationalisation of several subsidies, with discussions said to be at an advanced stage.
Among the subsidies that are said to be proposed for “modernisation” include RON95 fuel as well as agricultural products like sugar and rice.
Last month, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed confirmed that the government is likely to introduce a targeted fuel mechanism soon to cushion the impact of the rising crude oil prices.
However, a source close to the matter told The Vibes yesterday that the Malaysia Social Protection Council (MySPC) chaired by Datuk Seri Ismail Sabri Yaakob is not in full favour of the fuel subsidy rationalisation, following a recent meeting held with MPC to discuss the plan.
Zakariah said if it is true there is pushback from MySPC, this is understandable considering the inflation, which is further aggravated by the shortage of commodities globally and increase in effective demand.
“If the subsidy is removed, there will be an artificial increase in the cost of production too. The indirect impact of fuel price increase is very crucial.”
Look beyond political gain, implement targeted subsidy
Veteran economist Tan Sri Ramon Navaratnam, however, appears to back Mustapa’s plan for a targeted fuel subsidy to be implemented, saying the government should prioritise the long-term welfare of the economy.
He added that the subsidy should only be given to those who are truly deserving, and that the government should not look to maintain the incentive across the board for the sake of political survival as the general election looms.
The government should not be only looking into short-term political gain and expediency. The subsidy should only be provided to the needy, and not the higher income group.”
Asked if removing fuel subsidies for the upper and middle-income groups would affect spending, Ramon said the government must have the confidence that the average Malaysian is sensible enough not to spend on unnecessary consumption.
Beyond rationalising subsidy, the former chairman of the Asli Centre for Public Policy Studies added that it is important for the administration to practice good governance and stop leakages in its bid to address inflation.
“There has been a lack of reform, while corruption is also understood to still be rampant. Imagine if we remove the subsidies – this will only further compound the problem the rakyat is facing.” – The Vibes, May 21, 2022
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