Carmelo Ferlito says maintaining the price of subsidised RON95 amid volatile global oil prices means the cost difference must be absorbed by public finances.
Carmelo Ferlito, CEO of the Market Education Centre, said the government’s efforts to maintain the price of RON95 petrol at RM1.99 per litre amid volatile global oil prices meant the cost difference must be absorbed by public finances.
He warned that fiscal pressure from geopolitical uncertainty and large subsidies could limit the government’s ability to maintain social safety nets, including Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah, if the subsidy approach remains fully universal.
To mitigate this, Ferlito recommended restructuring subsidies in the medium term to manage fiscal risks, including replacing broad-based subsidies with more targeted measures.
“Among other measures, low-income groups could be protected through targeted vouchers rather than blanket cash handouts, while fiscal discipline is strengthened so that temporary shocks do not turn into permanent structural deficits.
“If the goal is to safeguard living standards, the most effective approach is targeted assistance combined with macroeconomic discipline.
“Without structural reforms, the country risks financing ever-larger nominal support while simultaneously constraining the space for meaningful social protection programmes,” he told FMT.
On March 1, Prime Minister Anwar Ibrahim said the government would try to maintain the current price of RM1.99 per litre for subsidised RON95 for Malaysians, despite global market uncertainty from the Middle East conflict.
Anwar, who is also the finance minister, said that rising global crude oil prices due to the Strait of Hormuz blockade could affect the country, but the government was determined to maintain the RON95 price under the Budi Madani RON95 programme.
WTI crude oil has risen 2.78% to US$67.02 per barrel while Brent crude has increased 2.87% to US$72.87 per barrel.
Business intelligence and energy research firm Rystad Energy projects that Brent crude could spike by as much as US$20 per barrel due to recalibrated risk premiums, unless there are clear signs of tensions easing following the attack.
Economist Geoffrey Williams predicted that the Gulf conflict would be short-term and that Brent crude prices would stabilise at around US$80 to US$90 per barrel.
“For now, the government can sustain the subsidies, but if the conflict drags on or oil prices remain high for a longer period, the situation could become challenging,” he said.
Williams suggested introducing tiered pricing based on monthly consumption to ensure that 98% of petrol buyers still benefit from subsidies without overburdening the government.
“For example, full subsidy for the first 50 litres, half subsidy for the next 25 litres, and no subsidy if consumption exceeds 100 litres. This is a fairer approach than sudden subsidy cuts,” he added.
FMT previously quoted several other economists as saying that disruption to shipping activity in the Strait of Hormuz could drive up world oil and gas prices, leading to higher costs at home and swelling the government’s fuel subsidy bill. - FMT
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