Despite positive signs, Mr Anwar has acknowledged that there is much room for improvement in Malaysia’s fiscal governance and performance. The government is working on managing its RM1.5 trillion debt and aims to reduce its fiscal deficit to 4.3 per cent this year, with a target of 3 per cent by 2026. In an effort to reduce spending on subsidies and social assistance by RM11.5 billion, the government has adjusted subsidies for diesel, chicken, and electricity. The World Bank has stated that further rationalization is needed to achieve the targeted reduction in subsidy spending, along with measures to lessen the impact on inflation and vulnerable groups.
Following the backlash from removing diesel subsidies, Malaysia-based economist Shankaran Nambiar suggested that Mr Anwar may take a more cautious approach to rationalizing petrol subsidies. Nambiar noted that the removal of diesel subsidies was unpopular, and it would be wise for the government to assess public sentiment before introducing petrol subsidy rationalization. Economy Minister Rafizi Ramli announced a targeted petrol subsidy program to be rolled out in the second half of 2024, but details and timelines for implementation have remained unclear. Bank Muamalat Malaysia’s chief economist, Mohd Afzanizam Abdul Rashid, emphasized the importance of providing clear guidelines and timely cash assistance to those affected by the subsidy cuts to minimize the impact on purchasing power.
The government’s move to remove diesel subsidies has led to an increase in diesel prices overnight, affecting some vehicle owners who may have qualified for assistance. The government could use the lessons learned from the diesel subsidy removal as a template for implementing the petrol subsidy rationalization more smoothly. Dr. Afzanizam highlighted the potential repercussions of subsidy cuts on the prices of goods and services, underscoring the importance of timely cash transfers to eligible recipients to mitigate the impact on purchasing power. The government may announce more details on the petrol subsidy rationalization plan, including application guidelines and timelines during Friday’s budget announcement.
The Malaysian government’s efforts to lower subsidy spending and improve fiscal governance have received praise from the World Bank, but further rationalization is needed to achieve targeted reductions. The World Bank has emphasized the importance of mitigating the impact on inflation and vulnerable groups in the process of reducing subsidies. While Mr. Anwar aims to reduce the fiscal deficit and manage the country’s significant debt, challenges remain in balancing economic growth with the need for fiscal discipline. The government’s cautious approach to subsidy rationalization, particularly in light of past backlash, underscores the importance of public sentiment and timely implementation of assistance programs for affected individuals.
In conclusion, Malaysia’s efforts to reduce subsidies and improve fiscal governance are a step in the right direction, but challenges remain in balancing economic growth with the need for fiscal discipline. The government’s cautious approach to subsidy rationalization, particularly in light of past backlash, emphasizes the importance of public sentiment and timely implementation of assistance programs for affected individuals. Moving forward, clear communication, timely cash transfers, and lessons learned from past subsidy removals will be crucial in ensuring a smooth transition to a more sustainable fiscal path. By addressing these challenges and continuing to prioritize fiscal sustainability, Malaysia can move towards a more stable and resilient economic future.
