KUALA LUMPUR: The diesel subsidy reform signals seriousness and sets the stage for the much-anticipated reform of the RON95 fuel subsidies, says an economist.
Apurva Sanghi on X (formerly Twitter) today weighed in on the government's commitment to economic reforms after Prime Minister Datuk Seri Anwar Ibrahim announced that the government will implement targeted subsidies on fuel starting with diesel.
LINK: https://www.nst.com.my/news/nation/2024/05/1053660/updated-diesel-subsid...
"The diesel subsidy reform is a clear indicator of the government's earnestness in addressing subsidy inefficiencies," Apurva wrote.
While the move is a commendable step forward, he said the RON95 reform represents a more complex challenge.
"The success of the RON95 reform will depend on three critical factors; timing, the handling of price increases, and the narrative communicated to the middle class."
Apurva said that the reform should be introduced when global energy prices are relatively low to minimise the impact on consumers.
The risks of global inflationary shocks could exacerbate the effects of the reform, he added.
Apurva also highlighted the importance of managing the inevitable price increases sensitively and noted that the RON95 reforms could lead to a one-time price rise of between five and nine per cent, depending on global energy prices.
"Careful management of these price increases is essential to mitigate public backlash and economic disruption," he said.
"It will be vital to equally monitor sectoral impacts closely to manage and mitigate any adverse effects as the knock-on effects of removing RON95 subsidies could vary significantly across different sectors," he added.