Targeting subsidies will not increase national debt, saving up to RM4 billion a year – MoF

KUALA LUMPUR: The implementation of subsidy targeting is not a measure that increases the national debt, but rather an important strategy to reduce long-term liabilities, stabilise the fiscal position and strengthen investor confidence in Malaysia’s economic prospects.

The Ministry of Finance (MoF) said savings through targeted subsidies will be used for the well-being of the people and funding the development of educational, health and public transport facilities.

The retargeting of RON95 petrol subsidies is one of the government’s initiatives to help ease the burden on the people as well as increase the efficiency of spending and distribution of the country’s financial resources, said the ministry in a written response to the Dewan Rakyat published on the Parliament website today.

According to the MoF, the government is expected to generate savings of around RM2.5 billion to RM4 billion per year based on domestic consumption data and the assumption that around 20 percent of the total consumption of RON95 currently involves consumers who are not eligible to receive subsidies.

“The savings range takes into account various scenarios of global crude oil prices between US$60 and US$80 per barrel, as well as the implementation of subsidy elimination on non-targeted segments such as foreigners and commercial users,” he said.

The ministry also explained that the subsidy targeting approach has the advantage of not causing a sharp increase in inflation rates compared to raising the price of RON95 to the market price for all, with inflation expected to remain below two percent for 2025 and 2026.

“It also helps accommodate different levels of RON95 usage among citizens with different daily travel distances,” added the MoF.

The ministry said the government is committed to adopting a prudent and responsible fiscal approach, with subsidy targeting seen as capable of strengthening the country’s fiscal position without increasing debt and ensuring that benefits are channeled more effectively.

MoF said this in response to a question from Datuk Seri Mohd Rafizi Ramli (PH-Pandan) who wanted to know the estimated savings in system costs and annual implementation expenses for 2025, 2026 and 2027 for the RON95 subsidy program and how the savings will be utilized and which allocations will be increased using the savings as well as the percentage of improvement in the country’s fiscal deficit.

— BERNAMA