Malaysia’s Anwar says to cut fuel subsidy at the ‘right time’
MALAYSIAN 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 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 on Tuesday (May 14). The government of the State of Qatar is the underwriter of the forum, powered by Bloomberg.
“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 (S$23.2 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 per cent of GDP from 5 per cent 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 per cent of gross domestic product. Doing so will help win more investors into South-east Asia’s only A-rated emerging economy and help lift growth to as fast as 6 per cent.
While the reforms will boost the country’s allure to investors, it risk 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 per cent 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 per cent since September, may average as much as 3.5 per cent this year on the potential impact of the subsidy reforms.
Analysts at Citigroup 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’s weighed on the ringgit, which dipped to a 26-year-low in February. BLOOMBERG
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