MALAYSIA’S petrol supply will be stable through July, Prime Minister Datuk Seri Anwar has assured the public.
According to Sunway University economics professor Dr Yeah Kim Leng, such a subsidy approach is fiscally unsustainable as it amounts to nearly 3% of GDP, which is likely to be financed through borrowing: “This will lead to the country’s debt-to-GDP breaching the statutory 65% limit.
“A more prudent approach would be to contain the fuel subsidy bill and share the global energy price shocks more equitably with consumers and businesses while shielding vulnerable households and small businesses in a more targeted manner,” he says.
Yeah adds there will be a trade-off to cap the subsidy bill from ballooning as inflation is expected to rise at a faster pace.
“Nonetheless, the economy’s low and stable inflation averaging 1.9% since the second half of 2023 suggests adequate capacity to cope with a moderate inflation pick-up.
“Another approach to avoid excessive fiscal slippage is to reduce government expenditure by tightening discretionary and development spending selectively so that economic growth, jobs and upgrading are not harmed.”
However, Centre for Market Education chief executive officer Carmelo Ferlito says it also means that the government is using public finances to hide the real cost of energy from consumers, while transferring that cost to taxpayers, future taxpayers and other areas of public spending: “The danger is that generalised fuel subsidies appear compassionate in the short term but become socially imprecise and fiscally exhausting over time [and that time in Malaysia has already been very long].
“They benefit not only vulnerable households but also higher- consuming households and businesses, simply because they consume more fuel. In this sense, they are not well-targeted.”
He stresses that a better alternative is to move towards one market price and individualised support: “Pump prices should remain uniform and market- based, while assistance should be delivered directly to those who need help through purpose- vouchers for fuel, transport, food, or other essential needs.”
Ferlito says the government should not manipulate prices at the point of sale, but should support households directly and transparently: “This would protect vulnerable people while preserving the economic function of prices. Prices tell us where scarcity is emerging. If we suppress them, we also suppress the incentive to economise, adjust, innovate, or search for alternatives.”
South-East Asian Futures Initiative Centre policy researcher and analyst Dr Mikhail Rosli says the larger issue is that every ringgit that is spent on subsidies is a ringgit that is not being spent on essential social infrastructure: “So I will be cautious about framing this as whether it’s sustainable or not because there’s no risk to insolvency. The Malaysian government can pay for it.
“But I guess the larger issue is that every ringgit that we spend on subsidies is a ringgit that we’re not spending on healthcare or education. And I think that’s the larger conversation that Malaysians should broach.”
Mikhail notes that would be a sensitive conversation because the ideas being put forward are necessarily about making decisions and trade-offs between parts of society.
An example is the recent proposal that T20 (top 20) households will not get the Budi95 subsidised petrol rate: “That’s an active choice and that is actually actively a political choice. And I think that’s a conversation that Malaysians as a society should start having. And unfortunately we’re not.”
