‘Strategies in place to cushion effects of rationalisation’

The initiative to rationalise fuel subsidies is expected to impact the country's inflation rate, Economy Minister Rafizi Ramli stated.

However, he assured that welldesigned implementation strategies, coupled with targeted cash assistance, would help mitigate these effects.

He said the government continued to subsidise and maintain the diesel price at RM2.15 per litre for 23 types of logistics vehicles under the Subsidised Diesel Control System (SKDS) 2.0, while keeping the diesel price at RM1.88 for land public transport including school buses, express buses, ambulances, and fire department vehicles.

The rate of RM1.65 remains unchanged for fishermen, and cash subsidies under Budi Madani are also provided.

“Bank Negara Malaysia (BNM), through the publication of the Economic and Monetary Review 2023, expects that rationalising subsidies will have short-term implications on the country’s inflation rate. The inflation rate for 2024 is projected to be between two to 3.5 per cent.

“This situation is partly due to the phased transition towards targeted subsidy mechanisms, particularly involving fuel subsidies,” he said in a written reply in the Dewan Rakyat on Tuesday.

He was responding to a question from Datuk Mohd Shahar Abdullah (BN-Payar Besar) on the expected impact of fuel subsidy rationalisation on the inflation rate in 2024 and mitigation measures if global fuel prices spike due to geopolitical crises.

Rafizi said the government’s fiscal position is increasingly challenging and requires a commitment to realign subsidies, which are a significant component of fiscal management.

“The welfare of the people remains a priority.

“Therefore, the government needs to choose methods to realign subsidies that can balance the government’s fiscal goals and simultaneously reduce the impact on the cost of living borne by the people.”

On mitigation measures, Rafizi said, based on forecasts by international organisations such as S&P Global, EIU, and Bloomberg, the average global price for Brent oil is projected to be US$85 per barrel in 2024.

“However, if oil prices rise suddenly, the government, through the Finance Ministry, BNM, and the Economy Ministry, will conduct a reassessment according to current needs.

“This is to ensure that the people, especially low-income groups, are not burdened by any price changes,” he said.

Meanwhile, Rafizi said the government was studying the need to include RON95 in its subsidy rationalisation efforts.

In a written reply to Parliament on Tuesday, Rafizi, however, said for now, the government’s primary focus was on rolling out diesel subsidies until the targeting of these subsidies stabilises and leakage in subsidy distribution is reduced.

“Should the rationalisation of subsidies for RON95 be carried out in the future, the government will ensure all measures are in place to adequately support affected groups,” he said in response to Datuk Seri Radzi Jidin (PN-Putrajaya).