KUALA LUMPUR, July 2 — Malaysia’s fiscal spending in the first five months of 2024 highlights a pressing need to reform fuel subsidies to meet the country’s deficit target for next year, according to Citigroup Inc.
In a news report on Bloomberg today, Citigroup’s chief Malaysian economist, Wei Zheng Kit, noted on Monday that government spending from January to May reached 53.9 per cent of the full-year target, surpassing the spending levels of the same periods in previous years.
He said as soon as this month, Malaysia may start to roll back blanket subsidies for RON95 fuel, the country’s most widely used gasoline, following the recent shift towards targeted diesel assistance in June.
Prime Minister Datuk Seri Anwar Ibrahim aims to reduce Malaysia’s budget deficit to 4.3 per cent of GDP from last year’s 5 per cent by phasing out broad subsidies, in a bid to attract more investments into the country, reported Bloomberg.
In 2023, Malaysia allocated approximately RM81 billion to subsidies, with fuel assistance comprising the majority.
Citi estimates that the government could save an additional RM3 billion to RM4 billion this year if a 30 sen per litre increase for RON95 is implemented in July, said Bloomberg.
Authorities have indicated that the targeted diesel assistance alone could save about RM4 billion annually.
However, officials are proceeding with caution, and some analysts believe the RON95 subsidy cuts may be postponed to the end of 2024.
Anwar today said the government’s current focus is to ensure the smooth implementation of diesel reforms, following a 56 per cent overnight price hike last month that faced public backlash.
The prime minister told Parliament that there is currently no policy framework in place for a swift removal of RON95 subsidies.
“Targeted subsidies are hard to implement. If you ask me, we should have done it for RON95 a long time ago, but it’s not easy,” he was quoted as saying by Bloomberg.
