No Targeted Subsidies Until Inflation Is Under Control

Due to high inflation, the rollout of targeted subsidies won't happen until the situation is on a more favourable level.

According to Bank Negara Malaysia (BNM) Governor, Tan Sri Nor Shamsiah Mohd Yunus, the best time to implement the 'proposed' targeted subsidies is when Malaysia is no longer facing 'high inflationary pressures'.

Blanket subsidy to targeted subsidy will push up inflation

It's been reported that the rise of inflation is unavoidable if and when the blanket subsidy regime transitions over to a targeted mechanism. However, the savings obtained by the move can be used to help other factors like social protection programs.

This is referred to as 20% of the current economy which is still operating below the pre-pandemic levels following the first half of 2022. In order to implement it successfully, there are certain factors that need to be taken into account.

*Image credit: The Star

Current inflation and phase-by-phase implementation

The BNM governor also mentioned that in order for the targeted subsidies to be implemented successfully, the government needs to consider two major factors - the current inflationary environment and the implementation procedures which should be done in phases.

Out of the RM77.7 billion subsidy and aid expected to be rolled out (more than doubled from the earlier estimate of RM31 billion), around RM37.3 billion alone is used for the blanket fuel subsidy. The bulk of it all is being used by the T20 and M40 income groups, which are said to spend more on fuel.

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz was reported to have said that the introduction of targeted subsidies is too early for Budget 2023. The reason? High global inflation. Although the 3.4% hike is much lower than the global average of 6.7%, this rise in food prices and overnight policy rates from banks certainly have had a profound effect.