Malaysian Prime Minister Anwar Ibrahim has signaled he sees no urgent must cut fuel subsidies, which he says would strain consumers and cause inflation – although it’s a reform closely watched by investors.
“I acknowledge that it has to be done, but it has to be done sensibly,” Bloomberg Television’s Haslinda Amin told the Qatar Economic Forum on Tuesday. “Because I will not punish the masses in any way.”
Fuel prices in Malaysia are among the many lowest on the earth because of state support. Asked whether the nation would cut such subsidies this 12 months – as his government had previously indicated – Anwar said it will occur “at the best time, after we are fully prepared.”
Anwar, who pledged firstly of his term to enhance Malaysia’s fiscal position and reduce public debt from its current level of over 60 percent of gross domestic product, reaffirmed his commitment to reducing unnecessary spending and leakages, while balancing the necessity to keep Malaysians comfortable.
While the subsidy reforms will make the country more attractive to investors, such a move could further erode Anwar’s popularity, which has fallen since he got here to power in late 2022. The country’s economic growth fell to three.7% last 12 months, after recording its fastest expansion in twenty years in 2022
Anwar said the federal government goals to avoid wasting 5 billion ringgit ($1 billion) a 12 months after reducing support for electricity and poultry consumers.
“Now we have to consider diesel because there are too many leaks,” he said.
Malaysia currently absorbs a good portion of the fuel and cooking oil prices borne by its population, with the fee estimated at 81 billion ringgit last 12 months. The government has sought this 12 months to interchange broad subsidies with targeted aid to assist narrow the 2024 budget deficit to 4.3%. GDP from 5 percent in 2023. When Anwar took power, the fiscal gap was 5.6 percent and the debt was 1.5 trillion ringgit, in line with the prime minister.
Although details on the long-awaited withdrawal of huge subsidies remain sparse, the central bank predicts that inflation, which has remained below 2 percent since September, could average as much as 3.5 percent this 12 months, weighing on the potential impact of the subsidy reform .
“So how do we go about undertaking this reform without punishing the poor?” Anwar said: “I think this is very important.”
Citigroup analysts expect a “significant increase” in the chance of an rate of interest hike later this 12 months if Malaysia starts cutting fuel prices in July.
Malaysia’s central bank last revised borrowing costs a 12 months ago, setting them at a record spread from the Federal Reserve. This is reflected within the ringgit, which hit a 26-year low in February.
