Slow subsidy reforms led to drop in competitiveness, says Anwar

Malaysia fell four places to 10th out of 14 countries in the Asia-Pacific region in a recent competitiveness ranking. (Bernama pic)

KUALA LUMPUR: Prime Minister Anwar Ibrahim today said the delay in subsidy rationalisation, and its impact on the country’s expenditure, were among the contributing factors for Malaysia’s decline in a competitiveness index.

Anwar aims to replace broad subsidies, which cost the country RM81 billion last year, with targeted assistance to help reduce the 2024 budget deficit to 4.3% of the gross domestic product from 5% in 2023.

During today’s Dewan Rakyat sitting, Anwar noted that the International Institute for Management Development (IMD) World Competitiveness Ranking contained criticism about the country’s subsidy and cash aid programmes.

“The report said we are not firm when it comes to expenditure. Despite having increasing budget deficits, the government is still approving (cash aid like) Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah,” he said.

“The report (also) said Malaysia’s subsidies are an ‘unrealistic economic prescription’ as the prices (of subsidised goods) were lower than (market prices).

“But in the current economy, (we) have to consider the interests of the people,” he said to a question from Afnan Hamimi Taib Azamudden (PN-Alor Setar), who wanted to know the government’s strategy following the decline in the ranking.

Malaysia dropped seven places to 34th out of 67 countries in the ranking released last Tuesday.

It also fell four places to 10th out of 14 countries in the Asia-Pacific region, marking the first time it has ranked below Indonesia and Thailand.

Anwar, who is also the finance minister, said Malaysia’s position was not affected in previous editions of the IMD ranking as expenditure on subsidies was not included as a metric.

He also said Indonesia’s rise in the ranking – from 34th to 27th – was partly based on its efforts to cut down on flour and sugar subsidies.

He expressed confidence that the country’s position would improve due to the strengthening of the ringgit, economic growth, and the fuel subsidy rationalisation which started with diesel in Peninsular Malaysia on June 10.

The targeted diesel subsidies are the third step in the government’s efforts to restructure subsidy allocations following the RM4.5 billion savings from electricity tariff adjustments and RM1.2 billion savings from floating the prices of chicken and eggs.

“I do not deny that (we must worry about) the ringgit’s performance, our higher expenditure on subsidies and being late to rationalise subsidies,” said Anwar.

“But I believe our ranking will rise if we take the (appropriate) measures.”