Now's The Best Time To Phase Out Fuel Subsidies, Govt Told

The raging conflict in the Middle East, as well as the possibility of a spike in crude oil prices have sparked uncertainty over whether Prime Minister Anwar Ibrahim will proceed with the removal of the fuel subsidy.
Analysts believe that this is the best opportunity for Malaysia's government to remove petrol subsidies, given the 55% increase in fuel prices nationwide since Anwar's government cancelled the diesel subsidy.
The heavily subsidized RON95 is expected to see price floating as part of reforms needed to strengthen government finances, according to Anwar, who made the announcement in October 2023. However, he has not yet specified when the adjustments will take effect.
Despite Iran's unprecedented missile strike in Tel Aviv, according to economist Mohd Afzanizam Abdul Rashid who spoke with NST, the price of crude oil is still steady globally adding that the recent ringgit appreciation has also contributed to a decrease in the retail price of gasoline.

According to estimates, the price of RON95 without subsidies would be less than RM3 per litre based on the current price of RM2.83 for Brent crude oil. This is significantly less expensive than in April, when the price of unsubsidized RON95 was RM3.60 per litre, necessitating the government to spend more subsidies in order to stabilize prices at the pumps.
This presents the government with the best chance to carry out its long-delayed plan to eliminate RON95 subsidies, according to Afzanizam.

"The oil market is in a very conducive position if the government wants to remove the subsidies at this time, because the difference between the market price and the subsidy price is currently the smallest since 2022," said Afzanizam, chief economist at Bank Muamalat. As of right now, the government subsidizes RON95, keeping the price per litre at the pump at RM2.05; in contrast, the higher grade RON97 gasoline is not subsidized and currently costs RM3.19. Rather than fully floating the pump prices, the Malaysian government should gradually reduce RON95 subsidies to better manage the impact on inflation and the economy, according to Lee Heng Guie, executive director of the Socio-Economic Research Centre, who spoke with The Straits Times.

Analyst Doris Liew of the think tank IDEAS Malaysia, on the other hand, stated that Malaysia, being a major importer of petroleum products and crude oil, faces significant challenges should the Middle East conflict continue to drive up oil prices. She stated that if petrol subsidies were not abolished, the fiscal deficit would increase.

At the same time, Liew warned that if the government removed the last remaining fuel subsidy, inflation and the cost of living would rise.