Stronger ringgit, softer oil prices position KL to phase out fuel subsidies

Rise would be manageable for consumers if RON95 petrol price is floated now: Analyst

- : Zunaira Saieed Malaysia Correspondent

KUALA LUMPUR - The stronger ringgit coupled with softer oil prices of late present a good opportunity for Malaysia's government to remove petrol subsidies, a key plank of its economic reforms, say analysts.

Malaysian Prime Minister Anwar Ibrahim said in October 2023 that his administration intends to float the price of the heavily subsidised petrol known as RON95 as part of reforms needed to bolster government finances, but has yet to announce an implementation date.

The ringgit has recently outperformed the world's currencies, appreciating over 14 per cent versus the US dollar in the third quarter of 2024. For the year to date, the ringgit has appreciated over 8 per cent against the US dollar to close on Oct 4 at RM4.21, from RM4.59 at the beginning of 2024. The local currency also strengthened against the Singapore dollar by more than 6 per cent to RM3.24 on Oct 4 from RM3.47 on Jan 1.

Economists say that the government should capitalise on the stronger ringgit and moderate oil prices currently to rationalise fuel subsidies, which currently cost it between RM15 billion (S$4.6 billion) and RM20 billion annually.

The stronger local currency translates into cheaper oil imports which are traded in US dollars, and ultimately leads to reduced pump prices for consumers.