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Malaysia Plans Subsidy Cuts to Avert Debt Crisis
Source: thejakartapost.com
Source Date: Thursday, May 27, 2010
Focus: Electronic and Mobile Government, ICT for MDGs, Internet Governance
Country: Malaysia
Created: May 31, 2010

Malaysia may begin cutting fuel and other subsidies under a proposed five-year plan that could save the government 103 billion ringgit ($31 billion) and help avoid a debt crisis, a Cabinet minister said Thursday. Idris Jala, a minister in the Prime Minister's Department, said Malaysia's subsidy bill was unsustainable at a whopping 74 billion ringgit ($22 billion) last year, or 12,900 ringgit ($3,890) per household. This comprised 15 percent of the 2009 national budget, which pushed the deficit to a 20-year high of seven percent of gross domestic product.

At a roadshow to gauge public opinion on the proposed subsidy cuts, Jala warned that Malaysia's debt of 362 billion ringgit ($109 billion), or 54 percent of the economy, could nearly double to 100 percent by 2019 if the cuts are not carried out. "We don't want to end up like Greece," he said. "We desperately need an exit strategy for subsidies as they are unsustainable ... otherwise, we have a time bomb on our hands." The subsidies have resulted in Malaysia having the lowest food prices in the region, and its fuel prices are among the cheapest in the world. Under the proposal drawn up by a government think-tank headed by Jala, the government will gradually cut subsidies for fuel, gas, electricity and highway tolls but keep its spending on education, agriculture, fisheries, and health care to help the poor. Fuel and infrastructure account for about 38 percent of the total subsidy bill.

The plan has not been approved by Prime Minister Najib Razak's government, which fears a voter backlash ahead of general elections due in 2013. It calls for petrol prices to be raised this year by 15 sen (5 cents) from 1.80 ringgit (54 cents) a liter currently. That would be followed by a gradual 10 sen (3 cents) increase a liter every six months until 2012. The price increase would slow after that until it reaches 2.60 ringgit (78 cents) a liter by the end of 2015. "We cannot give subsidies forever," Jala said. Jala said some 97 percent of Malaysian subsidies were dispensed on a blanket basis without taking into account income levels. He said 71 percent of petrol subsidies went to mid- to high-income groups while 70 percent of liquid petroleum gas subsidies were channeled to businesses instead of households.
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