KUALA LUMPUR: Removing subsidies can be punitive to Malaysia’s near term growth and complicates the improvement in wages at a time when price levels remain elevated, said Bank Islam Malaysia Bhd chief economist Firdaos Rosli.
The economist said it’s not wise to opt for subsidy rationalisation especially when the country is still recovering from the pandemic era.
“We need subsidy for now so that people will spend as how they should in a post-pandemic era,“ he said during the bank’s first quarter results press conference today.
Firdaos said the government’s Madani economic narrative (NEM), to be launched in August, needs to focus on growth-enhancing strategies, hence a paradigm shift from the existing framework is needed.
He said this is because the current disposable income method used for the granting of subsidies may only complicate policymaking rather than make it easier.
“It is better to redirect the focus on improving tax revenues while ensuring the near term growth remains robust. As I mentioned, even without the government doing anything, the total expenditure of subsidy will go down naturally anyways this year because global oil prices are now lower compared to where it was last year,“ he noted.
The NEM, he added, should complement the recalibrating of the 12th Malaysia Plan, where a mid-term review should be announced soon.
“We don’t have a fiscal stimulus package that is high enough for us to grow post-pandemic. So how we are going to replenish the RM145 billion Employees Provident Fund (EPF) withdrawals plus dividends that were lost during Covid-19,“ he said.
The economist said the government must be able to provide the right economic narrative as far as the near term growth is concerned to boost investors’ confidence and the ringgit.
Firdaos added that he believes the ringgit can end the year at RM4.28 against the US dollar based on the economic growth trend.
Source: https://www.thesundaily.my/business/economist-subsidy-rationalisation-may-impact-malaysia-s-gdp-growth-AE11153571