Najib saves RM1.1 billion, average Malaysians PAY through their noses for petrol, diesel

KUALA LUMPUR - Alliance DBS Research estimates the fuel subsidy cut, which came into effect on Thursday, will enable the government to save around RM1.1bil in 2014.

The government, which reduced the subsidy for RON95 petrol and diesel by 20 sen per litre, would help it achieve its fiscal deficit target of 3% by 2015 and a balanced budget by 2020.

Alliance DBS Research said he announcement came as a surprise ahead of the Budget 2015 proposals next week and amid the recent decline in global crude oil price.

However, Alliance DBS Research said in light of this fuel subsidy cut, it expected a delay in the new multi-tiered pricing mechanism.

“We maintain our view that the current blanket subsidy mechanism has to be changed to a multi-tiered subsidy structure based on household income level,” said Alliance DBS Research.

“This is to ensure that subsidies are only channelled to the lower-income group. We hope that the government would have strong will-power to initiate the fuel subsidy reforms soon in order to ensure the economy is more competitive,” it added.

The research house said while inflation has been expected to taper towards the end of the year on base effect (2014 first eight months average inflation rate: 3.3%), it now expect inflation to spike again in the last quarter of this year.

“We expect inflation for September to be around 2.5% to 3.0% – expiry of the base effect. We maintain our view that 2014 full-year inflation will be 3.5% and inflation to hit 4% in 2015 on the back of Goods and Services Tax (GST) implementation,” it said.

Alliance DBS Research said the fuel subsidy cut raised pump-prices for RON95 to RM2.30 per litre and for diesel to RM2.20 per litre.

It added the government was expected to save some RM1.1bil and help manage fiscal deficit to 3.5% in 2014 and 3% by 2015.

Despite so, the government will still be subsidising RON95 at 28 sen per litre and diesel at 32 sen per litre. -ANN