Malaysians will continue to benefit from fuel subsidies

Malaysians will continue to benefit from fuel subsidies as the government says it will continue to protect the people from the impacts of a sharp rise in inflation.

Despite rising global oil prices resulting from the Russia-Ukraine war, the authorities will continue to provide subsidies for RON95 and diesel.

The rising global oil prices amid the escalating tensions between Russia and Ukraine has exerted a stronger inflationary pressure on both consumers and producers worldwide.

However, Malaysia’s fuel inflation to continue moderating in the near term thanks to the government’s capped fuel prices for RON95 and Diesel.

Oil benefit

“We don’t foresee the government withdrawing or reducing the subsidy program anytime soon as it overshoot headline CPI inflation and also derail the pace of recovery in the Malaysian economy.

“In terms of fiscal management, we believe the government is able to finance the subsidy given that oil-related revenue is expected to rise strongly benefiting from the strong oil prices,” says MIDF.

For instance, average Brent crude oil price was USD111pbd in 2012 while oil-related revenue was recorded at RM66.6 billion and total subsidies cost at RM44.1 billion.

On a flip side, the soaring global commodity prices would have indirect effects on the domestic economy among others via higher food inflation due to heavy dependent on imports channel.

“Nevertheless, we opine the receding fuel inflation will outweigh the rise in food inflation. Hence, we maintain our projection for CPI inflation for this year at +2.1%,” says the analyst firm.