KUALA LUMPUR — The government’s RON 95 subsidiy rationalisation plan will drive Malaysia’s fiscal consolidation while there will be upside risks if oil prices rise, Standard Chartered (Stanchart) said in a reaction to Budget 2025 tabled yesterday.
The banking group said subsidy rationalisation for RON95 is expected to result in RM8 billion in annual savings, but with implementation planned for mid-year, only RM4 billion can be achieved in 2025.
“The bottom 85% of income earners will remain eligible for the RON 95 subsidy at a cost of RM12 billion per annum, based on the government’s oil price assumption of US$75-US$80 per barrel.
“Based on the Brent crude oil price of US$80 per barrel, Stanchart estimates the annualised inflationary impact of the RON95 subsidy rationalisation at 0.3 percentage points (or 0.15 ppt for half-year),” it said in a statement today.
The bank said it is difficult to estimate the impact of targeted subsidy rationalisation on inflation at this point.
Similar to 2024, the government has provided a wide 2%-3.5% inflation forecast range for 2025 to account for potential subsidy changes, the bank noted.
“The 2024 inflation forecast range was narrowed to 1.5%-2.5% (from 2.1%-3.6%) on lower-than-expected inflation year-to-date,” it said.
Stanchart also maintains its view that Bank Negara Malaysia is likely to look past any one-off increases in inflation due to subsidy rationalisation, with the risk biased towards one more hike if second-round inflationary effects take hold.
The bank sees the increase in minimum wage, effective in February 2025, as a bolster to the country’s consumer spending in 2025.
“The wage increase is a key thrust of the 2025 budget, to that end, the government allocated RM105.9 billion to emoluments – a 6.2% increase from 2024, as basic civil servant salaries are raised between 7%-15%,” it said. – October 19, 2024