KUALA LUMPUR: The implementation of the diesel fuel subsidy rationalisation would not negatively impact the country's inflation rate and is a significant step to improve the country's financial performance, say experts.
According to Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the country's inflation rate was likely to remain within the government's target range.
"I suppose the Malaysian inflation rate is likely to remain within the government's target range of two to 3.5 per cent this year.
"It had gradually risen to two per cent in May from 1.5 per cent in January," he said.
Yesterday, Finance Minister II Datuk Seri Amir Hamzah Azizan said the government was optimistic that the implementation of diesel subsidy rationalisation would allow Malaysia to achieve its inflation rate and economic growth targets.
He said the government's projection for the inflation rate this year was between two per cent and 3.5 per cent, while the gross domestic product (GDP) growth rate is expected to be between four and five per cent.
"I think the government is fully aware of the inflation risk and that's why the rollout of fuel subsidy rationalisation has been implemented on a staggered basis.
"They (the government) started with diesel fuel first to better understand its impact on consumers and businesses.
"This would be their guiding principle whenever they decide to commence with the RON95 subsidy rationalisation exercise," he said.
Afzanizam said the savings accumulated from fuel subsidy rationalisation could used allocated towards capacity building, such as education.
He said that by promoting students' knowledge, the country could produce an innovative and creative workforce that is well-equipped with the right knowledge.
He suggested that the government run awareness campaigns on why the fuel subsidies needed to be rationalised.
"If the public could see the rationale, they would be more receptive and appreciate the efforts (fuel subsidy rationalisation), especially if they could see the outcomes," he said.
Meanwhile, University Kuala Lumpur's Business School economic analyst Associate Professor Aimi Zulhazmi Abdul Rashid said restructuring the distribution of subsidies was a crucial step to improve the country's finances to reduce government debt and the country's annual spending deficit.
"Currently, for every RM1 received by the government, as much as 16 per cent has to be used to pay debt interest.
"This is not good and cannot be allowed to increase because it directly burdens the government's finances, not to mention that the existing taxes need to be increased again or new taxes introduced just to pay it off.
"This restructuring will improve the government's financial rating and will lower the government's loan interest rate.
He said such rationalisation required the government's commitment and political strength to implement as it was a practice that has been going on for decades.
"It (the fuel subsidy rationalisation exercise) will surely come with adaptation challenges in the short-term. (However) it is a sacrifice for the greater good in the future."