The government knows that fuel subsidies are important to the people and will continue to provide subsidies on four controlled items to help reduce the country’s inflation rate, said minister in the PM’s department (economy) Datuk Seri Mustapa Mohamed. The four items are cooking oil, petrol, diesel and liquefied petroleum gas (LPG).

“Our country is now moving into the endemic phase and despite having a little pressure following the uncertain inflation rate, the government can still manage the rate. This is due to government efforts and assisted by the relevant agencies,” the Jeli MP said, reported by NST.

“To maintain this, the government will continue to monitor the situation from time to time,” he said, adding that the country’s inflation rate was at 2.2% in March, which is still low compared with the USA which recorded an 8.5% inflation rate and Europe at 7.5%.

The inflation rate is set to rise though. “The country’s inflation rate is expected to increase following the rise on Producer Price Index (PPI) of 11.6% and also due to the pressure of inflation rate at the global level. In February, the PPI was at 9.7%. If the rate increases, which it normally will, it will cause inflation… hence, the government will monitor this closely,” the veteran minister said.

While fuel subsidies will not be scrapped in Malaysia, we should expect a more targeted form of it in the near future, as opposed to the current blanket subsidy. A more targeted approach would continue to cushion the impact for those who need the help, such as the B40 group, while reducing the country’s subsidy bill, which is unsustainable. Although Malaysia is an oil producing country, every US$1 increase in crude prices chips away RM410 million from the nation’s coffers.

It’s no secret that the government is looking to replace the current blanket style – ‘targeted’ has been mentioned before and was reiterated by Mustapa last month.

“Those who can afford should pay more and the people who do not deserve (the subsidy) should not be given the subsidy at all. Subsidies are meant for the poor people, particularly the B40 (bottom 40% income group). The issue is the timing of when it is going to be implemented,” Tok Pa said.

He added that fuel subsidies has played an important role in moderating inflation in Malaysia, and the government has been able to maintain price increases of between 2% and 3% for the last 10 to 20 years. “However, it will be a big strain on the budget. When we outlined our budget last year, the estimate was about RM5 billion in subsidies. Now the estimate is somewhere around RM30 billion, representing a sixfold increase in the amount of subsidies,” he said.

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