KUALA LUMPUR: Subsidised diesel volume could decline by 3.2 billion-3.5 billion litres or 35-45 per cent following the imminent implementation of fuel subsidy rationalisation, according to some analysts' back-of-the-envelope calculations.
The estimates are based on diesel subsidy savings of RM4 billion and unit diesel subsidy of RM1.05-RM1.25 per litre assuming market price of RM3.20-RM3.40 per litre, CIMB Securities research analysts Michelle Chia and Lim Yee Ping said.
Chia and Lim expects limited inflationary impact on end-consumers as the diesel weight in the Consumer Price Index basket is small at 0.2 per cent.
"Moreover, the first and second-order inflation pass-through is limited by continued provision of subsidies to logistical vehicles and small businesses, Sabah and Sarawak. Hence, our inflation forecast of 2.7 per cent remains intact," they said.
The 2,7 per cent forecast, they added, has imputed a 10 basis point contribution from diesel subsidy rationalisation.
"The move is a starting point for the consolidation of the fiscal balance to -3.5 per cent of gross domestic product or better by 2025 (2024: -4.3 per cent)," Chia and Lim noted.
Prime Minister Datuk Seri Anwar Ibrahim said on Tuesday the Cabinet had agreed to rationalise fuel subsidies, beginning with diesel.
The move towards a targeted diesel subsidy mechanism will begin in Peninsular Malaysia, while implementation in Sabah and Sarawak will come later as diesel is heavily used in those states for daily transportation.
The shift primarily targets the higher-income T20 group and 3.5 million foreigners, leaving B40 and M40 unaffected.
Chia and Lim said while the implementation date was not stated, they understand that registrations for the diesel fleet card system are due to be in the next month, putting June as the earliest start date.
Apart from the newly-announced cash aid to small businesses, the continued provision of diesel subsidies provision to public transportation, logistical vehicles, Sabah and Sarawak keeps a lid on inflation pass-through.
CIMB Securities said subsidy rationalisation, alongside additional revenue collection of RM4.5 billion from tax-enhancement measures, mitigates higher expenditures including the civil servants' salary hike of 15 per cent (previous: more than 13 per cent).
The firm said next to watch is details on RON95 petrol subsidy rationalisation which will have a greater implication on inflation outlook.