BUSINESS

FUEL SUBSIDY RATIONALISATION: A DIFFICULT BUT BOLD MOVE BY ANWAR

26/05/2024 10:07 AM

By M. Saraswathi

KUALA LUMPUR, May 26 (Bernama) -- Prime Minister Datuk Seri Anwar Ibrahim has embarked on what is surely a difficult but bold move to rationalise fuel subsidies and, unlike previous leaders, defied the temptation to be populist.

In so doing, he has prioritised the economy and the people, whereby the savings of RM4 billion a year in rationalising diesel subsidy alone is substantial and will go a long way towards improving the people's livelihoods.

But more importantly, diesel subsidy rationalisation would curb the decades-long insidious act of smuggling that has caused Malaysia to lose millions of ringgit almost on a daily basis.

Naysayers and opposition politicians have criticised him, but there must come a time for someone to stop the flagrant smuggling of diesel into neighbouring countries. 

Anwar did just that by taking the tough and decisive step which previous leaders didn’t, their reluctance to rationalise fuel subsidies leading to continued and unabated leakages via smuggling.

His message when announcing the diesel rationalisation was clear, that is, the continued subsidy payout across the board, benefitting all and sundry, is not sustainable.

It begs the question of whether critics against the rationalisation have been blindsided by all the continued smuggling that resulted in millions of ringgit being lost.

The amount of money paid out to finance the subsidies is mind-boggling. 

According to the Ministry of Finance’s 2024 Fiscal Outlook, Malaysia’s total subsidy outlay more than sextupled from RM14.2 billion in 2010 to an estimated RM70.3 billion in 2022. The biggest bill was for fuel subsidies, amounting to RM52 billion or 74 per cent of total subsidies.

Undoubtedly, some will take advantage of this issue for political gain, but they cannot deny that such hefty subsidy payouts are unsustainable and would only create a culture of dependency. 

The question again is whether these quarters are so blindsided by all the smuggling along Malaysia's borders and accounts of our neighbours down south taking advantage of our cheaper fuel.

Past oversight in the focus of subsidy issues has resulted in the country’s debt and liabilities reaching RM1.5 trillion or 82 per cent of Gross Domestic Product (GDP).

According to Hong Leong Investment Bank, removing fuel subsidies would necessitate pump prices increasing by 64 per cent for RON95 and 61 per cent for diesel — still the lowest in ASEAN, except for Brunei. 

The investment bank estimated this could yield RM29 billion in annual savings and hypothetically reduce the fiscal deficit from 4.3 per cent of GDP (government’s 2024 target) to 2.8 per cent.

On inflation, it estimated that every 10 per cent increase in RON95 and diesel prices will raise the Consumer Price Index by 0.51 percentage points on a full-year basis.

Credit should go to the MADANI government for biting the bullet and rationalising diesel subsidies to improve the national coffers and better the people's livelihoods.

Conversations post the recent announcement were mostly focused on the timeline with questions raised as to whether rationalisation will be implemented or the government is merely focusing on cash transfers.

The government did not set a specific date even when subsidy rationalisation was first announced in the 2024 Budget.

Nevertheless, initiatives to this end will begin this year with the rationalisation exercise to start with diesel fuel and involve only users in Peninsular Malaysia.

To cushion the rakyat against sharp increases in the prices of goods and services, the government will continue to provide diesel subsidies to traders using commercial diesel motor vehicles, involving 10 types of public transport vehicles and 23 types of goods transport vehicles under the Subsidised Diesel Control System (SKDS).

This includes bus and taxi operators. The government will also continue to provide diesel subsidies to certain categories of fishermen.

While the mechanism has not been finalised, from the recent announcement one can predict that it could be a combination of subsidised fuel as well as cash transfers for targeted groups.

On closer examination, the rationalisation would be a laborious process, meaning it would be easier said than done, for it involves several ministries, agencies, departments and states.

For instance, sectors such as fisheries, transportation, and smallholders come under three different ministries, and within them, there are multiple categories.

Hence, the rationalisation of subsidies—very much ingrained in Malaysian society for decades—will not be as easy as flipping a coin. 

It is clear the government is treading gradually to ensure no one is left behind.

The diesel subsidy rationalisation will be implemented when the right mechanism is in place rather than hastily.

Obviously, as in all policy implementation measures, there will be teething problems due to the complexity of the issue and the involvement of large sections of the populace.

The question is, would the subsidy rationalisation stop the leakages via smuggling? Well, not entirely.

Unscrupulous quarters will continue to find ways to smuggle subsidised fuel, especially diesel.

But with a proper mechanism in place, this can be curbed as much as possible, akin to the quote by Mahatma Gandhi that there is a sufficiency in the world for man's need but not for his greed.

-- BERNAMA


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