Subsidy rationalisation remains one of the most immediate fiscal tools available to the government, but carries significant political and social risks if not carefully managed.
PETALING JAYA: Subsidy rationalisation could bolster Malaysia’s fiscal position, but economists warn that poorly timed or poorly communicated reforms risk sparking public backlash at a time when lower-income households are already under mounting financial strain.
Universiti Teknologi Mara senior lecturer in economics Dr Mohamad Idham Md Razak said subsidy rationalisation remains one of the most immediate fiscal tools available to the government, but carries significant political and social risks if not carefully managed.
“Subsidy rationalisation can be positioned as improving efficiency and reducing leakages, especially if shifted towards targeted support.
“However, any immediate increase in prices without clear and visible compensatory measures may lead to dissatisfaction, particularly among vulnerable groups,” he said.
The government has been exploring subsidy reforms as part of broader efforts to rein in spending, with the policy frequently cited as a key fiscal lever amid tightening budget conditions.
However, the debate comes against a backdrop of mounting household stress.
Consumer Credit Oversight Board Task Force findings last year showed that more than 70% of active buy now, pay later (BNPL) users in Malaysia are from the lower-income B40 group.
Outstanding BNPL debt reached RM4.9 billion as at end-2025, underscoring growing reliance on short-term credit to manage daily expenses.
Against this backdrop, Dr Mohamad Idham said policymakers must be cautious in sequencing reforms.
“While a wealth tax may contribute to longer-term redistribution, it does not directly alleviate short-term financial stress faced by households.
“Therefore, the focus should remain on targeted subsidies, income support and financial resilience measures, while gradually introducing structural reforms.”
He stressed that the success of subsidy rationalisation would depend heavily on timing, communication and credibility.
“A gradual approach, supported by targeted assistance and clear policy messaging, is critical to maintaining public trust and ensuring acceptance of reforms,” he said.
Economist Prof Dr Geoffrey Williams said subsidy rationalisation remains one of the most effective tools available to strengthen Malaysia’s fiscal position but warned that reform momentum has stalled despite its potential impact.
He added that projected savings from rationalisation could be redirected to ease pressure on households or strengthen social protection measures.
At the same time, Williams said Malaysia needs a broader rethink of its fiscal framework, arguing that both revenue constraints and structural inefficiencies must be addressed together rather than in isolation.
Dr Mohamad Idham echoed this view, saying the country’s fiscal challenges cannot be resolved through a single policy instrument.
“Malaysia currently faces both a revenue constraint and a spending efficiency issue. Addressing only one side would be insufficient.
A balanced approach that improves revenue, reduces waste and better targets spending is needed for long term stability.”
