KUALA LUMPUR: As the first step towards gradual subsidy rationalisation, the government announced yesterday a reduction in the subsidies for fuel, specifically petrol, diesel and liquefied petroleum gas (LPG), as well as sugar.
Subsidies for RON 95 and diesel will be reduced by five sen per litre and LPG by
10 sen per kg. RON 97 petrol will no longer be subsidised but will be subject to a managed float, with the price determined by an automatic pricing mechanism.
The new price for RON 95 is RM1.85 per litre compared with RM1.80 per litre
previously. For RON 97, which accounts for 13 per cent of sales of petrol and diesel, the new price starts at RM2.10 per litre and will be reviewed monthly.
Diesel is now priced at RM1.75 per litre against RM1.70 per litre previously.
For LPG (cooking gas), the new prices are RM18.50 for 10kg (RM17.50 previously),
RM22.20 for 12kg (RM21 previously) and RM25.90 for 14kg (RM24.50 previously).
For sugar, the price has been adjusted upward by 25 sen per kg to RM1.90 per
kg (previously RM1.65 per kg). These new prices took effect at midnight.
“The government has made a difficult but bold decision,” a statement from the Prime Minister’s Office said yesterday.
“By choosing to implement these modest subsidy reforms, we have taken a
crucial step in the right direction towards meeting our commitment to reduce the
fiscal deficit, without overburdening the Malaysian people.
“These measures are a demonstration of our fiscal responsibility. They will
enhance Malaysia’s financial stability, while also protecting the rakyat.”
In Alor Star, Prime Minister Datuk Seri Najib Razak said the subsidy cuts would help the government reduce the fiscal deficit while the reduced subsidies
meant that more funds could be channelled towards national development for the people.
“We have many programmes under the National Key Result Areas and the National Key Economic Areas, which will be announced soon.
“I assure you the subsidy cuts are minimal and will not be a burden to the people. We will use the savings derived from the subsidy cuts to meet the needs of the people, especially in the rural areas,” he said after opening the Kuala Kedah Umno division delegates’ conference.
Even with these subsidy cuts, the government will still spend an estimated RM7.82 billion on fuel and sugar subsidies this year. The prices of fuel and sugar will continue to be among the lowest in the region.
By way of a comparison, RON 95 petrol is priced at the equivalent of RM4.12 a litre in Thailand and RM2.48 a litre in Indonesia. This subsidy rationalisation will, according to estimates, allow Malaysia to reduce government expenditure
by more than RM750 million this year.
Economists contacted by Reuters news agency generally agreed with the government’s move to cut subsidies. Enrico Tanuwidjaja of OSK-DMG in Singapore said the subsidy cuts suggested that the government was quite positive about the growth outlook.
“I think the amount itself is relatively small in the sense that people’s purchasing power may not be that eroded and may not be that inflationary.
“This is a good way to consolidate the huge negative in the fiscal position.
“Let’s see how consistent they are moving forward — that is the important part. They can afford to do so if looking at the oil prices now.
“Definitely, this is a point moving forward that they are going to embark on a more prudent fiscal approach.”
Irvin Seah of DBS Bank said the move signalled the government’s readiness to really go ahead with its rationalisation plan, especially with fuel subsidies.
“There will be some mild impact to headline inflation and we can expect to see, overall, Malaysian prices going up. The petrol price hike is an added bonus to lowering the fiscal deficit.
“We have, anyway, expected the fiscal deficit to fall this year on strong gross domestic product growth.” Federation of Malaysian Consumers Associations president Datuk Marimuthu Nadason urged consumers to accept the small price increases, saying they would not have a huge impact.
He urged traders not to take advantage of the new sugar price to charge consumers more for their food products. Marimuthu said the reduction in subsidies would help to reduce the government’s spending and channel its resources to other areas to uplift society.
“The government will now be able to provide improved education and health services and facilities to the public.”
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