Update On Petrol Subsidy, 1MDB Payments etc

 

I received some feedback about the government's petrol subsidies from a reader (thank you) which I would like to share.

Ref your article today on price of petrol in Singapore, high prices due to taxes imposed. Its not the actual market value.  Real market cost of petrol is about that of Ron 97 sold locally.

For S---l V-p---r, it is higher as its actually LNG converted into pure petrol with no impurities. 

So actual fuel subsidy (in Malaysia) is RM2 plus per litre as RON 97 now breaching RM5 per litre.

Thailand, Philipines do not have fuel subsidy and hence maybe why their currencies have appreciated against Ringgit.

Indonesia still have some form of fuel subsidy but phasing it out gradually.

Our Ringgit will keep depreciating until we get rid of fuel subsidy which could cost the govt between RM30-40b or more this year alone. More than losses of 1MDB which was over a longer period.

Some currency traders are looking at Malaysia defaulting by 2026.

My comments : I checked some petrol prices in other countries. 

Thailand US1.44  / RM 6.30 per liter
Phillipines US1.26 / RM 5.52 per liter
Japan US1.48 / RM6.48 per liter

Indeed the Singapore prices are higher because of their higher petrol taxes. 

But still comparing our petrol prices with Thailand, Philippines and Japan the difference is still  between RM3.47 to RM4.43. That is also the range of the subsidy that the Government here is paying.

How  much exactly is the total amount of the fuel subsidy the Government will have to pay this year? Will it be around the RM30-40 billion suggested by the commenter above or more? I also received the following info from someone a few days ago:

"3 weeks ago, we the rakyat paid RM7.5bil to settle for one of the 1MDB bonds. Next RM7.5b due in Oct this year. In comparison, we budgeted about RM5b to build hospitals etc for year 2022 (development expenditure for health sector)."

My comments : So for this year alone servicing the 1MDB debt will cost RM15 billion.  The fuel subsidy is going to be sky high this year. They will total in the tens of billions of Ringgit.

It will be interesting to see what is the governments tax collection this year. And the governments overall revenue.

It is not going to be easy. All over the world even seasoned finance ministers are having trouble managing the revenues and expenditures.

We may not be able to hold our breath.