Fuel hike: Necessary or not?

Just yesterday the govt has announced an increase (actually a reduce in government subsidy) of 20 cent per litre for RON 95 and diesel prices. Roughly means that I have to fork out an extra RM10 whenever I fill up full tank on my Beetle 

Quoting Bloomberg on this news;

“Malaysia raised fuel prices for the first time since 2010, joining neighboring Indonesia in curbing subsidies that have stretched government budgets and threatened investor confidence.

The price of the widely used RON 95 grade of gasoline rose 20 sen to 2.10 ringgit ($0.64) a liter after Prime Minister Najib Razak announced the change yesterday in Putrajaya.. Diesel was put up 20 sen to 2 ringgit a liter. The increases will help the government save about 1.1 billion ringgit this year and 3.3 billion ringgit annually in future by reducing state subsidies, he said.”

What I believe to be the factors of the subsidy’s cut back (remember  this is based on what I believe);

Fitch downgraded Malaysian rating outlook to negative.

This was in July. Reasons cited : the country’s rising debt & lack of budgetary reform. Moody’s Investors Service said last month the country has a “narrow” revenue base and “relatively high” government deficits, state subsidy bills and debt.

What could happen next?

Inflation

Inflation

Inflation

I believe that the government is finally having some concerns on the country’s fiscal position. Drastic as it may sound, but this has to be done.

But this is not all the govt does in tackling the deficit issue. There will be some delays in state building projects except for the ongoing construction of MRT projects. In a way this is a good measure taken by the govt (only if it materializes), but it is best to wait for the 2014 budget to fully grasp on what the govt is planning to do.

 

This is serious, yes. But the people has been ignorant for far too long, it’s beyond measures already. Najib’s administration – a reality check for you. Blanket subsidies (ever since the time of Dr. M) are proven to be fatal. There’s nothing good can be gained from giving handouts to people (politically motivated or not). Cash, fuel, rice, housing, shareholdings and many more are stellar example of how an economy built on aids won’t succeed in a long term.

Financial institutions and research houses have gradually lower their forecasts on year-end FBM KLCI and have increased their inflation forecasts to reflect higher fuel costs & weaker earnings expectations. However, had the govt do nothing over this, believe me we’ll get into deeper trouble. Well for a start ringgit was on a 3-year low hovering about 3.32 per dollar (5th worst performance among 11 most traded Asian currencies). Then today the ringgit climbed 0.4%t to 3.2615 per dollar as of this morning.

Could be a good thing, no?

 

 

 

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