Malaysia PM Anwar says fuel subsidy will be cut at the ‘right time’

QATAR – Malaysian Prime Minister Anwar Ibrahim reiterated the need to cut wasteful spending, including reducing excess subsidies to trim government debt levels, while stopping short of committing a timeline to do away with fuel concessions.

“I concede that things need to be done, but it needs to be done judiciously,” he told Bloomberg Television’s Ms Haslinda Amin at the Qatar Economic Forum on May 14.

The government of the State of Qatar is the underwriter of the forum, powered by Bloomberg.

“How do we then proceed to undertake this reform without punishing the poor – that to my mind is very central,” he said in response to a question on the timing of the subsidy reduction. “We will do it at the right time,” he said.

Malaysia currently absorbs much of the price of fuel and cooking oil for its population, a move that was estimated to cost RM81 billion (S$23.27 billion) in 2023.

Mr Anwar has sought to replace the broad subsidies with targeted assistance in 2024 to help narrow the 2024 budget deficit to 4.3 per cent of gross domestic product from 5 per cent in 2023.

Mr Anwar, early in his term, had pledged to improve Malaysia’s fiscal position and reduce government debt from the current level of more than 60 per cent of gross domestic product.

Doing so will help win more investors into South-east Asia’s only A-rated emerging economy and help lift growth to as fast as 6 per cent.

While the reforms will boost the country’s allure to investors, they risk further denting Mr Anwar’s popularity, which has diminished a year since coming to power in late 2022 as dissatisfaction over the government’s handling of the economy climbed.

The country’s GDP growth cooled to 3.7 per cent in 2023 after posting the fastest-expansion in two decades in 2022.

Even as details on the long-awaited rollback of hefty subsidies remain scarce, the central bank anticipates that inflation, which had been below 2 per cent since September, may average as much as 3.5 per cent in 2024 on the potential impact of the subsidy reforms.

Analysts at Citigroup expect a “meaningful rise” in the risk of an interest-rate hike later in 2024 should Malaysia begin cutting fuel prices in July.

Malaysia’s central bank last adjusted borrowing costs a year ago, placing it at a record differential to the Federal Reserve. That has weighed on the ringgit, which dipped to a 26-year-low in February. BLOOMBERG