PETALING JAYA: The impending implementation of rationalised diesel subsidies signals the seriousness of the Malaysian government in reining in its deficit and sets the stage for subsequent reforms of the RON95 petrol subsidy, says an economist.
Apurva Sanghi (pic), who is the World Bank lead economist for Malaysia, said the success of RON95 reforms depends on several factors – timing, how ensuing price increases are handled, and how the matter is communicated to the middle class.
“Diesel reforms come on top of other recent reforms such as the rationalisation of electricity subsidies for large-scale users and water tariff reforms.
“It sets the stage for addressing the elephant in the room – RON95 subsidies, but what will help it stick?” he said in a series of posts on X (formerly known as Twitter) yesterday.
He said RON95 reforms can lead to one-time increases in prices, adding that prices could rise by between 5% and 9%, depending on global energy prices.
“Timing becomes more important. Introduce RON95 reforms when energy prices are relatively low,” he said, adding that RON95 reforms have the potential “to reshape the social contract”.
He said the middle class will be most affected by the move.
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“Using some subsidy savings to help them and/or other complementary reforms will secure their buy-in and ensure overall success.
“Overall, Malaysia is getting serious about subsidy reform and RON95 is the litmus test,” he said.
On Tuesday, Prime Minister Datuk Seri Anwar Ibrahim announced that diesel subsidies will be rationalised for the peninsula, a move that could potentially save the government around RM4bil annually.
To prevent any drastic increase in the prices of goods and services, subsidies will however be given to traders using diesel vehicles.
