Prolonging current measures could affect national debt, says economist

PETALING JAYA: Malaysia cannot continue cushioning rising fuel costs through ever-expanding subsidies without risking a heavier debt burden in the years ahead, economists said.

Putra Business School (PBS) economist Assoc Prof Ida Md Yasin opined the government should not continue dealing with rising fuel prices by simply adding more subsidies.

“We cannot continue indefinitely dealing with rising fuel prices by adding subsidies, because in the end those subsidies will have to be financed through debt,” she told theSun when commenting on the latest diesel price adjustment.

She added that the latest increase in unsubsidised diesel prices could still place pressure on transport-related costs, although the broader inflation impact may be more limited as some sectors continue receiving targeted support such as fleet card facilities.

She said a larger concern is the longer-term fiscal effect if the government keeps absorbing rising fuel costs while maintaining existing subsidised rates.

“If the government continues increasing subsidies to keep prices unchanged, the debt burden would grow, and that debt would eventually have to be borne by future generations.

“If subsidies keep increasing, debt would also keep rising, and in my view that is not fair because it would eventually be paid by the next generation.”

She added that Malaysia had not yet reached a more severe situation seen in some countries in which fuel supplies are disrupted due to high prices.

“In my view, conditions may worsen because the war is escalating, not de-escalating. So we must be prepared for a more serious situation.”

Meanwhile, PBS Masters and Doctorate course director Prof Dr Ahmed Razman Abdul Latiff said the public should not be overly alarmed, although authorities must remain vigilant against profiteering following the diesel increase.

“What needs attention is the possibility of traders taking advantage of the situation.

“If prices are raised excessively, reports should be lodged because there are laws against price gouging and profiteering.

“Authorities need to ensure that traders do not exploit the situation,” he told theSun.

He added that many diesel-dependent industries are cushioned by targeted subsidies and fleet card facilities, which should help contain the pass-through effect on operating costs.

He also said the existing support structure should help limit broader inflationary spillover, even as some consumer-facing sectors may still face upward cost pressure.

“Many industries have access to fleet cards and targeted subsidies provided by the government.

“Most industries that use diesel are able to manage their operating costs because of the targeted subsidies.

“For essential goods, they are covered under controlled items, so there should not be an issue. Prices of chicken, eggs, rice and cooking oil should not increase because of this. However, what may go up is the cost of eating at restaurants.”

On April 1, the Finance Ministry said from yesterday to April 8, unsubsidised diesel in Peninsular Malaysia rose 50 sen to RM6.02 a litre from RM5.52, while RON97 fell 20 sen to RM4.95 from RM5.15 and unsubsidised RON95 remained at RM3.87.

The ministry said the adjustment came as Brent crude climbed more than 40% to above US$100 a barrel, with refined petrol and diesel prices also rising sharply in the global market.

However, targeted subsidised rates remain unchanged, including RM1.99 a litre for RON95 under Budi 95.

 The Sun Malaysia