In order to follow through Prime Minister Mahathir Mohamad's pre-election pledge to curb retail prices of diesel and fuel, the government has re-introduced fuel subsidy.
Meeting this year's budget deficit target is not at risk, although the move will lift government expenditure. Three billion ringgit ($754.82 million) has been allotted by the government this year, to fund the additional cost. The subsidy will cost 0.33 ringgit a liter, this current week alone, for all retail purchases of RON95 grade fuel and diesel.
Any potential increase in subsidy costs from further rise in fuel prices is anticipated to be cushioned by higher fuel receipts. One of the rare net oil-and-gas exporting nations in Southeast Asia is Malaysia. AllianceDBS Research economist Manokaran Mottain, said, “There is no risk to the fiscal deficit. If the global fuel price were to go up, the government will get additional revenue in the form of dividend and tax.”
Following teh introduction of the GST levy on goods and services and the scrapping of fuel subsidy by previous Prime Minister Najib Razak, cost of living has soared for middle income earners , which indirectly affected the Malaysians election last month who voted out the National Front coalition.
As part of fiscal consolidation effort, Najib has abolished subsidies of fuel and other non-essential items regarded wasteful by economists. However, wide scale discontentment and frustration grew against the previous regime due to a sluggish wage growth and a steady inflation as well as corruption.
2.20 ringgit a liter was recently fixed by the government for RON95-grade fuel, while diesel price was fixed at 2.18 ringgit per liter. The price of higher-grade RON97 will be set at 2.66 ringgit a liter for Jun 7-Jun 13, which will be floated on a weekly basis.
When the government had announced the 2018 budget estimates in October, it had projected crude price to average at $52 per barrel for this year. Adding to the 21% gain recorded in 2017, fuel prices have climbed nearly 14% so far this year.
Mahathir has also scrapped the highly-unpopular goods-and-services tax (GST sicne 1st June), apart from restoring fuel subsidies, and pledged to raise minimum wage level across the country.
It is expected that some 20.7 billion ringgit in consumer spending would be generated by those measures and the government could still meet its target of narrowing the fiscal deficit to 2.8% of gross domestic product this year. PWKD11062018
Editors Notes: The international PetrolWorld Fuel Retail Conference in Kuala Lumpur in two weeks time 26th -27th JUne 2018 is perfectly timed to ascertain how the change of Government will affect the fuel retail markets. Check out www.fuelsexpo.com