Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus has stated that the right time for Malaysia to switch from the current blanket subsidy to a targeted subsidy is when the country’s inflation has been tamed. Additionally, the implementation should be carried out in stages to manage the impact of the change on the country’s economy.
Tan Sri Nor Shamsiah acknowledged that switching to a targeted subsidy may potentially cause inflation to rise. However, the savings obtained from the switch in subsidy mechanisms can then be used to support individuals who are truly in need through social protection programmes, instead of benefitting even those who are well off.
The governor added that similar support will also need to be extended to vulnerable sectors. This is particularly as 20% of the economy is still operating below the pre-pandemic level as of the second quarter of this year. “The outcome that we want to achieve is to have sustainable and inclusive growth,” she further remarked.
To note, Malaysia’s inflation in June 2022 – as measured by the consumer price index – rose to a 12-month high of 3.4%, exceeding the 2.2% to 3.2% range expected for this year. The rate, however, is still significantly lower than the average inflation rate in the world (6.7%) and in emerging economies (5.6%), largely due to the blanket subsidy policy adopted by Malaysia.
That said, the government has been consistently highlighting its intention to remove the blanket subsidy, noting that it is unsustainable for the country in the long run. In line with this, it is looking into ways to improve the subsidy mechanism, and is, in fact, already in the early stages of testing the mechanism for a targeted petrol subsidy.
Earlier last week, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz remarked that the government will only decide on introducing a targeted subsidy policy when the country’s inflation and global geopolitical situations stabilise. It noted that the present is not a suitable time to implement it, seeing as inflation is rising around the world.
(Sources: The Edge Markets, The Malaysian Reserve)
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