Lower oil price allows govt to redirect subsidies, says economist

 

Moving from blanket to targeted subsidies can free up more funds for healthcare, education and social welfare, according to an economist.

PETALING JAYA: 

The drop in oil prices has opened up room for the government’s targeted fuel subsidies plan, says an economist.

Sunway University’s Yeah Kim Leng said moving from blanket subsidies to targeted subsidies, including for RON95 petrol, would allow the government to save funds that could be redirected to essential areas. 

productive spending, such as public transportation, healthcare, education, rural development, and social welfare,

 he told FMT.

He was referring to the drop in fuel prices, such as Brent crude which hovered between US$80 and US$90 per barrel since early this year but dropped to US$73 in September. Natural gas prices also fell by 40%.

While the pump price of RON97 has been floated, the shift from blanket to targeted subsidies for RON95 has not yet been implemented.

Yeah said the drop in crude oil prices meant that the government currently forks out less to keep the RON95 petrol price at the subsidised level of RM2.05 per litre.

Fuel prices in our country have been relatively stable due to subsidies, so businesses that benefit from these subsidies have not seen much volatility,

 he added.

Meanwhile, the Malaysian Employers Federation (MEF) expects local businesses – particularly those in sectors such as chemicals, plastics and packaging, which depend on petroleum products – to benefit from the drop in crude oil prices.

Freight industries – including air, sea and land transport – were also expected to benefit, becoming more competitive in international markets with the reduced fuel expenses, MEF president Syed Hussain Syed Husman said.

Syed Hussain said these businesses would be able to cut operational costs, allowing the firms to reinvest in their operations, boost productivity and thus, strengthen the economy.

Lower operational costs give businesses the opportunity to strengthen their position in price-sensitive global markets,

 he added.

Yeah agreed that these savings could lead to higher productivity across various sectors.

Lower global fuel prices reduce inflationary pressures, which not only benefit businesses but also boost consumer confidence. This contributes to stronger economic growth,

 he said.

However, Syed Hussain said the savings might not be felt by consumers right away, as businesses remained cautious. He said this was because many companies were reluctant to lower their prices due to uncertainties in global oil markets.

“Businesses are hesitant to reduce prices for fear that fuel costs may rise again. They prefer to maintain their pricing structures to protect profit margins.

The government should provide incentives for businesses to reinvest in high-growth sectors. Tax cuts, grants and research funding are important tools to help companies boost productivity and competitiveness,

 he said. - FMT