Minister of Economy, Rafizi Ramli, disclosed that the government is gearing up to unveil the mechanism and criteria for rationalising subsidies in the coming weeks. This announcement aims to provide clarity on the implications of the subsidy rationalization plan to all segments of society.
During the launch of the World Bank’s Malaysia Economic Monitor (MEM) 2024 report titled ‘Bending Bamboo Shoots: Strengthening Foundational Skills’, Rafizi highlighted the potential benefits of transitioning savings from subsidies to social assistance. He emphasised that this move could potentially double the reduction in the poverty rate and contribute significantly to fiscal savings.
Dr. Yasuhiko Matsuda, the World Bank Country Manager for Malaysia, was also present at the event.
Research firms anticipate that the positive impact of subsidy rationalization programs will be felt next year, leading to a stronger fiscal position for the country. However, they note that the implementation of these measures may affect aggregate consumption.
The expected developments are forecasted to influence investor sentiment positively, fostering increased confidence in the domestic market in the latter part of this year. Analysts at BIMB Securities Research anticipate that government reform efforts initiated in 2024 will yield favorable results in the following year.
With brighter prospects on the horizon for 2025, driven by improved clarity on US policy direction and Malaysia’s enhanced fiscal position, investors are expected to be delighted. It is projected that the fiscal deficit in 2025 will hover around 3.0 percent following the implementation of subsidy rationalization initiatives.
Rafizi clarified that a combination of factors, including fiscal consolidation, will contribute to driving the Malaysian ringgit higher. This is anticipated to narrow the gap between the local currency and its purchasing power.
Moreover, the implementation of the Main Data Base (PADU) is expected to provide the government with ample space to execute subsidy rationalization effectively. Minister Rafizi emphasized the importance of data accuracy in ensuring fair subsidy distribution to those in need.
Additionally, Rafizi highlighted that fiscal consolidation would pave the way for new growth opportunities. He underscored the significance of the KL20 Action Plan, a comprehensive set of reforms aimed at positioning Kuala Lumpur as a thriving hub for venture capital (VC) and startup entrepreneurs.
