RON95 Subsidy Rationalisation Might Be Postponed, Says Analysts

Prime Minister Datuk Seri Anwar Ibrahim recently said that RON95 fuel subsidy rationalisation has not yet been finalised. According to Bloomberg, Anwar might delay this until next year in lieu of Malaysia's rapid economic growth.

Suhaimi Ilias, the chief economist at Maybank Investment Bank Bhd, states that Malaysia could still reduce its fiscal deficit to 4.3% of its GDP this year, even if subsidy cuts are delayed until 2025. This would be feasible if annual GDP growth exceeds the official forecast of 4% to 5%, resulting in higher revenue.

Last month, Suhaimi mentioned that the government could either raise RON95 price by RM0.32 per litre (+15.6%) starting July 1, 2024, or by RM0.65 per litre (+31.7%) on Oct 1, 2024. These increases are to enable the government to save an additional RM4.1 billion.

Suhaimi added that Malaysia's inflation rate would probably average closer to 2% in 2024 if subsidy cutbacks are postponed until the following year, as opposed to Maybank's current projection of 2.4%. According to him, "the economy is essentially firing on all cylinders."

Although eliminating RON95 subsidies would have a greater impact, Anwar has not committed to a precise time frame, preferring to concentrate on the seamless execution of diesel subsidy rationalisation.

Additionally, after the country's faster-than-expected economic growth in the previous quarter, Citigroup Inc. analysts have increased their growth projection for Malaysia to 5.2%. They also believe the government may postpone the RON95 subsidy rationalisation at the very least until the end of this year.