Malaysia is serious about reducing debt

World Bank lead economist for Malaysia Apurva Sanghi stressed that the upcoming rationalization of diesel subsidies reflects Malaysia’s government commitment to reducing its deficit and laid the groundwork for future reforms of the RON95 petrol subsidy.

He also said that the success of RON95 reforms relies on timing, price management, and effective communication with the middle class. 

“Diesel reforms come on top of other recent reforms such as the rationalisation of electricity subsidies for large-scale users and water tariff reforms.

“It sets the stage for addressing the elephant in the room – RON95 subsidies, but what will help it stick?” he said in a series of posts on X yesterday.

He also said that RON95 reforms could trigger temporary price rises, estimating increases of 5% to 9%, depending on global energy prices. 

He said the timing is critical, suggesting implementation during low energy cost periods, potentially reshaping the social contract.

He pointed out that the middle class would feel the greatest impact from the initiative.

“Using some subsidy savings to help them and/or other complementary reforms will secure their buy-in and ensure overall success.

“Overall, Malaysia is getting serious about subsidy reform and RON95 is the litmus test,” he said.

Prime Minister Datuk Seri Anwar Ibrahim declared on Tuesday the rationalization of diesel subsidies for the peninsula, potentially saving the government approximately RM4 billion annually. 

However, to avoid substantial hikes in goods and services prices, subsidies will be provided to traders utilizing diesel vehicles.

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