Malaysia’s cut in RON95 petrol subsidy has been called into question after voters criticised Anwar over diesel reforms

Bridget Welsh, an honorary research fellow at the University of Nottingham’s Asia Institute in Malaysia, said while subsidy cuts and the economy were clearly important to voters, it was also significant that the cuts had been implemented “without stakeholder engagement or recognition of the negative impact on middle-class voters”.

Malaysia’s uneven recovery from pandemic leaves millions of private sector workers Drain your retirement savings Changes to the country’s mandatory savings fund have allowed billions of ringgits to be withdrawn within weeks, leaving people short of cash to cover living expenses.
Protesters hold up placards during a protest against the government outside the official residence of Malaysian Prime Minister Anwar Ibrahim in Putrajaya late last month. Photo: EPA-EFE

The government faces accusations of failing to curb prices, with opposition parties arguing that cuts to utility bills, chicken subsidies and, more recently, the widespread removal of subsidies for diesel fuel have made the situation worse.

Penang state Chief Minister Chow Kon Yeow said the government’s defeat in Sungai Bakap constituency was due to voter dissatisfaction with the rising cost of living and moves to cut the country’s bloated subsidy spending, which official estimates cost about 80 billion ringgit ($17 billion) last year.

This comes despite delays in removing all diesel subsidies, which were designed to “minimize any political fallout,” said Brian Tan, Southeast Asia economist at British investment bank Barclays.

On June 10, the blanket subsidy was replaced by a targeted subsidy scheme aimed at reducing it, and diesel prices rose by almost 50% overnight to 3.35 ringgits (71 cents) a litre. Rampant smuggling It will save the government about 4 billion ringgits per year.

Prime Minister Anwar said last week that the government had not yet prepared a policy paper on reducing gasoline subsidies, and told parliament that it wanted to first gauge the impact of the diesel subsidy restructuring and gather public feedback before deciding on further cuts.

“The government faces a significant political challenge” by raising prices of currently subsidized RON 95-grade gasoline, Barclays’ Tan said in a research note on Monday.

A taxi driver waits for a passenger in a traffic jam in Kuala Lumpur’s Bukit Bintang district as observers say Anwar’s government faces “significant political challenges” in cutting gas subsidies. Photo: Bloomberg

But maintaining gasoline subsidies would complicate the government’s efforts to reduce the fiscal deficit this year to 4.3% of gross domestic product from 5%.

The government cited a 1.5 trillion ringgit ($318 billion) debt mountain, some of which is 1MDB ScandalThe main factors driving the need for subsidy reductions are:

James Chin, a Malaysia expert at the University of Tasmania, warned that the government is failing to adequately protect the poor from the impact of diesel subsidy cuts and predicts the situation will get worse if plans to cut petrol subsidies go ahead.

The reforms “look good on paper … but somehow they’re not working on the ground,” he said.

If we don’t solve these problems… [it] It will only invite a huge backlash.

Malaysia expert James Chin

“If these issues aren’t resolved,” further cuts to subsidies “will only lead to a huge backlash,” Chin told This Week in Asia.

“Of course, that’s bad news for the economy, but it’s also politically unfeasible.”

Analyst Welsh said the sudden rise in diesel prices had sparked widespread public opposition, limiting the government’s ability to push through much-needed subsidy cuts.

She said the government needed to rethink its fuel subsidy reform plan and focus on a gradual implementation to provide adequate support to low-income and middle-class households, as well as address public criticism “more respectfully”.

“It’s supposed to help the poor but the poor don’t see the benefits and the middle class who will be affected by the cuts feel targeted. They don’t see the benefits either,” Welsh said.

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