Malaysia will see a reduction in petrol subsidies in an effort to decrease the fiscal deficit. Some economists suggest that the reduction should be implemented in stages to soften the blow of the impact on the economy.
Whether it is done in stages or not, inflation will inevitably loom on the horizon. Many studies have lent credence to this scenario. Petrol is a vital input used in all sectors, especially in transportation. We will see the prices of flight and bus tickets increase. Fishermen also use petrol for their boats to catch fish. Farmers also use petrol to transport their agricultural products.
With higher petrol prices, production costs will inevitably increase, pushing prices of goods to rise simultaneously. What we are concerned about is that many households under the poverty line will bear the brunt of the consequences. Higher costs of living due to inflation will result in them struggling to put food on the table and a roof over their heads. They have been suffering from the current high costs of living. If there is inflation, it will rub salt into their wounds. As a result, many
of them will need to take on additional jobs to survive inflation.
Additionally, the government might soon announce an increase in civil service servants’ salaries, further exacerbating inflation. In the presence of petrol subsidy cuts, income inequality could widen.
Therefore, the government must weigh the pros and cons thoroughly before reducing petrol subsidies. Otherwise, underprivileged households will suffer from inflation. The government may explore other alternatives to cut the fiscal deficit so that the impact on the economy will be minimized.
by Assoc. Prof. Dr. Mohd Shahidan Shaari Faculty of Business and Communication Universiti Malaysia Perlis
