Govt Credibility Timing Key To Successful Fuel Subsidy Rationalisation

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 The fear is that even minor increases in fuel prices could ripple through the economy, impacting the cost of goods and services and burdening consumers.
We all know that Prime Minister Anwar Ibrahim is unlikely to withdraw petrol subsidies overnight, and for good reason.
Malaysia finds itself at a crossroads regarding its fuel subsidy rationalisation programme, which costs the government an eye-watering RM80 billion annually.
Anwar has said that there will be a phased withdrawal, with immediate measures only affecting 10 per cent of Malaysians.
That statement has sparked considerable debate among members of the business community, economists, policymakers and the general public. The more cynical among them claim the fuel subsidy rationalisation programme is a non-starter.
To grasp the magnitude of this proposed shift, it’s essential to consider the global context of fuel subsidies. Numerous countries have implemented measures to support their oil and gas sectors.
In recent years, the United States has expanded domestic oil production by easing regulations on hydraulic fracturing, or fracking, enabling it to maintain its status as a net crude oil exporter—albeit at significant cost to the environmental.
When it comes to direct petrol subsidies for motorists, the top six subsidising countries—ranked by magnitude—are Venezuela, Iran, Saudi Arabia, Kuwait, Algeria and Egypt.
Indonesia also subsidises petrol, and in Bali, prices per litre start from RM2.61 for RON90 and go up to RM3.26 for RON 92.
Malaysia’s approach to fuel subsidies has primarily been about keeping prices low for consumers, with the government absorbing the cost difference.
This is a legacy of the past when Malaysia was a net exporter of oil and gas. The country has retained the price stabilisation programme it instituted after the 1979 Iranian crisis even post-2014, when the country became a net importer of petroleum products.
The proposed reduction and eventual removal of fuel subsidies in Malaysia is in line with the country’s noble effort to spend less than it earns and decarbonization commitments given to the United Nations.
Malaysia relies heavily on these subsidies to keep fuel prices manageable for its citizens, particularly for lower and middle-income households.
The fear is that even minor increases in fuel prices could ripple through the economy, impacting the cost of goods and services and burdening consumers.
Moreover, critics are sceptical about whether the government is capable of implementing these changes transparently and fairly.
The real challenge lies in balancing the shift away from reliance on fossil fuel while safeguarding social equity.
Political will, public acceptance and effective communication will be vital in this endeavour.
Unless the government demonstrates genuine reform—including by replacing underperforming GLC leaders, rightsizing bloated institutions and curbing leakages of public funds—resistance to fuel price hikes will only intensify.
The government must also consider the timing of its subsidy reforms.
Consumers are already feeling the pinch of rising global oil prices and an uncertain economic landscape. Any steps toward reducing subsidies might be perceived as adding to the burdens of ordinary Malaysians during an economically volatile period.
Beyond rationalising fuel and other subsidies, the government must show a resolute commitment to fiscal discipline—to ensure Malaysia does not suffer the kind of economic crises witnessed in Greece or Sri Lanka.
Putrajaya must undertake careful consideration of the potential ramifications for its citizens. As the nation moves forward, it is essential that the government leads by example.
Before making Malaysians tighten their belts, the government must prove it can rein in waste and manage public finances responsibly. - FMT
Yamin Vong can be contacted on Facebook at yamin.com.my.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.

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