Malaysia to Cut Petrol Subsidies in 2024 to Reduce Fiscal Deficit

Malaysia plans to reduce petrol subsidies to narrow fiscal deficit, shift to targeted assistance for the needy. Aims to boost investor confidence and establish Malaysia as a top startup hub by 2030.

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Mazhar Abbas
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Malaysia to Cut Petrol Subsidies in 2024 to Reduce Fiscal Deficit

Malaysia to Cut Petrol Subsidies in 2024 to Reduce Fiscal Deficit

The Malaysian government, led by Economy Minister Rafizi Ramli, has announced plans to continue reducing petrol subsidies this year to help narrow the country's fiscal deficit. The government aims to reduce the deficit from 5% in 2023 to 4.3% of GDP in 2024.

Rafizi stated that the current blanket subsidy policy for RON95 fuel, which made up the bulk of the RM81 billion (S$23 billion) spent on subsidies last year, has allowed the top 20% of households to receive 53% of the subsidies. This model is deemed unsustainable, and the government intends to phase out these blanket subsidies and introduce a new targeted subsidy program this year.

Why this matters: The reduction in petrol subsidies is part of the Malaysian government's efforts to undo hefty subsidies and broaden its revenue base to boost investors' confidence, as the Malaysian ringgit trades near a 26-year low. The move towards targeted assistance aims to provide support to those in need while managing the country's fiscal deficit.

Currently, only locally registered vehicles are allowed to use subsidised fuel, priced at RM2.05 per litre for RON95 petrol and RM2.15 per litre for Euro 5 B10 and B20 diesel. Unsubsidised RON95 petrol was introduced in Perlis in February 2023 at RM3.22 per litre, and as of April 17, 2024, it sells for RM3.38 per litre.

Rafizi emphasized the need to manage the sequence of subsidy cuts carefully, as there is a risk of inflation picking up even before the cuts are implemented. Despite the recent depreciation of the Malaysian ringgit, Rafizi expressed minimal concern, stating that it has not deterred foreign investor interest or hindered the government's economic restructuring plans.

The government is also focused on establishing Malaysia as one of the world's top startup hubs by 2030, with initiatives led by the sovereign wealth fund Khazanah Nasional Bhd to expand the country's digital and technology sectors. These efforts include creating a 'super fund' with other sovereign funds to invest in startups and attract venture capital firms to the country.

Rafizi acknowledged that there will be dissatisfaction and problems once the subsidy reduction is implemented, but the government is on the right track to provide targeted assistance to the needy. The establishment of the Central Database Hub (Padu) in January 2024 will provide access to data needed to implement targeted programmes such as subsidy rationalisation or social welfare reforms.

Key Takeaways

  • Malaysia to reduce petrol subsidies to narrow fiscal deficit from 5% to 4.3% by 2024.
  • Current blanket subsidies benefit top 20% households; govt to introduce targeted subsidy program.
  • Subsidy cuts aim to boost investor confidence as Malaysian ringgit trades near 26-year low.
  • Govt focuses on making Malaysia a top startup hub by 2030 with Khazanah-led initiatives.
  • Central Database Hub to provide data for targeted subsidy and social welfare programs.