Malaysia to cut fuel subsidy at the ‘right time’, says Anwar

 

The government highly subsidised the prices of fuel and cooking oil, a move that was estimated to cost RM81 billion last year.

DOHA: Prime Minister Anwar Ibrahim reiterated the need to cut wasteful spending, including reducing excess subsidies, to trim government debt levels, while stopping short of committing to a timeline to do away with fuel concessions.

“I concede that things need to be done, but it needs to be done judiciously,” he told Bloomberg Television’s Haslinda Amin at the Qatar Economic Forum.

“How do we then proceed to undertake this reform without punishing the poor – that to my mind is very central,” he said in response to a question on the timing of the subsidy reduction.

“We will do it at the right time,” he said.

Malaysia currently absorbs much of the price of fuel and cooking oil for its population, a move that was estimated to cost RM81 billion (US$17 billion) last year.

Anwar has sought to replace the broad subsidies with targeted assistance this year to help narrow the 2024 budget deficit to 4.3% of gross domestic product from 5% in 2023.

Anwar, early in his term, had pledged to improve Malaysia’s fiscal position and reduce government debt from the current level of over 60% of GDP.

Doing so will help win more investors into Southeast Asia’s only A-rated emerging economy and help lift growth to as fast as 6%.

While the reforms will boost the country’s allure to investors, it risks further denting Anwar’s popularity that had diminished a year since coming to power in late 2022 as dissatisfaction over the government’s handling of the economy climbed.

The country’s GDP growth cooled to 3.7% last year after posting the fastest-expansion in two decades in 2022.

Even as details on the long-awaited roll back of hefty subsidies remain scarce, the central bank anticipates that inflation, which had been below 2% since September, may average as much as 3.5% this year on the potential impact of the subsidy reforms.

Analysts at Citigroup Inc expect a “meaningful rise” in the risk of an interest-rate hike later this year should Malaysia begin cutting fuel prices in July.

Malaysia’s central bank last adjusted borrowing costs a year ago, placing it at a record differential to the Federal Reserve. That has weighed on the ringgit, which dipped to a 26-year low in February. - FMT