FUEL PRICE HIKE IN MALAYSIA A GOOD MOVE, SAYS ECONOMIST?

 

The price of RON95 petrol and diesel will go up by RM0.20 per liter from midnight, Prime Minister Datuk Seri Najib Razak announced today in a move to rationalize subsidies.

Najib, who is also the finance minister, added that the 1Malaysia People Aid (BR1M) will be raised from the current RM500 in Budget 2014 to better direct financial aid to the needy.

RON95 petrol will be priced RM2.10 per litre and diesel RM2.00 after the hike, up from RM1.90 and RM1.80 respectively.

“We hope sellers will not take this opportunity to increase the price of goods without taking care the interests of the people,” Najib told reporters after a Fiscal Policy Committee (FPC) meeting here, describing the effect of the hike as “minimal”.

“Currently, our subsidy system benefits everyone, including the higher income group and foreigners. Thus, we need to move to a more targeted subsidy system that caters for the vulnerable groups,” Najib added.

The decision today was made as part of Putrajaya’s move to consolidate its fiscal position, and reduce the federal government current account deficit-to-gross domestic product (GDP) ratio to 3 per cent by 2015.

The price hike will reduce Putrajaya’s fuel subsidy of RON95 petrol to 63 sen per litre and 80 sen per litre for diesel.

Previously, the total fuel subsidy allocation for 2013 was recorded at RM24.8 billion.

On the other hand, Najib promised to increase the amount of BR1M handout as a way to reduce the burden of the low-income and vulnerable groups resulting from the price hike, and pledged a comprehensive social safety net over the longer term.

The government is likely to pay higher assistance to households earning below RM3,000 per month to allay the effects of higher petrol prices.

NGOs complained that increasing the RON95 pump price by 20 sen to RM2.10  would create a chain reaction hikes on prices of other consumers good. They said  the increase in prices will certainly affect the lower-income group, especially civil servants in the lower levels.

However, an economist  hailed the hikes as the right move to address the ever-increasing government debt, which currently stands at 53.5% as at the end of last year, an economist said today.

"The rationalization of subsidies would ensure that subsidies are redirected to the targeted groups,"  Rating Agency Malaysia Holding's Bhd's (RAM) chief economist, Dr Yeah Kim Leng told The Malaysian Insider.

"Headline inflation at 2% at the end of July is the right timing to introduce a gradual subsidy removal," he added.

• He also said that there will be shifts in consumption patterns but he expects inflation to remain subdued and price pressures would be marginal.
• The household income level for those in the lower income group has risen by 6%-7% from 2009 to 2012, and this would cushion the increase in petrol prices.
• With the increase in the price of RON95 petrol and diesel, the government is expected to save RM1.1 billion this year and RM3.3 billion annually. 

Source: Agencies