Malaysia
A:
* larger * smaller * reset * Email

* Print

Fuel, sugar prices up as subsidy cuts start
UPDATED @ 07:16:07 AM 16-07-2010
July 15, 2010

Consumers filling up tonight in droves before prices go up at midnight. - Bernama pic
KUALA LUMPUR, July 15 — The Najib administration will begin cutting subsidies tomorrow by raising the prices of petrol, diesel, natural gas and sugar in a move which could see the ruling Barisan Nasional (BN) coalition vulnerable to political challenges and risks.
The government announced tonight that RON95 petrol and diesel prices will go up by five sen a litre. Tomorrow's pump price will be RM1.85 per litre for RON95 and RM1.75 per litre for diesel. Subsidies for RON97 have been removed completely and its price will be subject to market forces.
Natural gas (LPG) will rise by 10 sen per kilogramme to RM1.85.
The price of sugar will also be increased, by 25 sen per kilogramme to RM1.90.
In a statement tonight, Prime Minister Datuk Seri Najib Razak said the move to cut subsidies on fuel and sugar would save the government RM750 million a year.
"The readjustment of fuel and sugar prices are minimal compared to the proposals submitted because the government wants to balance between maintaining the people's interests and the need to manage the country's deficit," he said.
The Malaysian Insider understands that this is the first stage of subsidy cuts and it is expected to be reviewed every six months.
Sources said that subsidies on electricity are also expected to be cut but no decision has been made yet on when that will happen.
By raising prices of fuel and sugar, Prime Minister Datuk Seri Najib Razak is signalling he is prepared to rebuild support for BN and implement economic reforms which could include the eventual introduction of an unpopular Goods and Services Tax (GST) and further market liberalisation.
The government’s reluctance to upset voters had led to reversal of government decisions and reform pullbacks that fuelled talk Najib was readying for a snap election.
Najib’s government was forced to reverse a decision recently to issue a gambling licence to quell mounting public anger.
This came after the GST was called off in February together with a scheduled fuel price hike in May.
The decision to begin spending cuts also suggests Najib has accepted the arguments of Datuk Seri Idris Jala.
Jala, the minister in the prime minister’s department, had controversially predicted Malaysia could be bankrupt by 2019 if it did not begin to cut subsidies for petrol, electricity, food and other staples, which he said cost the country RM74 billion last year.
Najib also recently braced Malaysians for the possibility that the economy could slow down in the second half of the year, in a development which would put his government’s economic growth targets at risk.
The prime minister said the possible slowdown was due to external factors.
Malaysia’s economy grew by an impressive 10.1 per cent in the first quarter of this year, marking two straight quarters of growth and three straight quarters of serious contraction last year.
Malaysia’s FDI rates have fallen faster than other regional players like Singapore and China, and at the same time capital outflows have dampened private domestic investments. Net portfolio and direct investment outflows had reached US$61 billion (RM197 billion) in 2008 and 2009 according to official data.
The government will allocate between RM90 billion and RM91 billion for expenditure in the first two years of the 10th Malaysia Plan (10MP) Najib’s government has set among the key challenges of the 10MP the stimulation of the private sector investments to grow at 12.8 per cent annually or RM115 billion.
It was reported that the country may not be able to achieve the six per cent gross domestic product (GDP) growth target if the 12.8 per cent growth is not achieved within five years.