The ongoing global geopolitical tensions have put Malaysia's financial position in an increasingly critical phase.
With Brent crude oil prices remaining high for an extended period, the government no longer has the luxury of time and is expected to be faced with several difficult choices regarding the restructuring of fuel subsidies to avoid further fiscal pressure.
According to Global Asia Consulting Senior Consultant, Samirul Ariff Othman, there are four main options that the government can currently consider.
The first option is to continue providing large-scale subsidies, which is seen as the easiest from a political point of view, but will be the heaviest burden on the country's financial coffers.
The second option involves reducing the BUDI95 subsidy quota from 300 liters to 200 liters per month, based on data that almost 90 percent of eligible consumers actually use less than the quota.
Meanwhile, the third and fourth options are to implement small and periodic increases in the price of RON95, or accelerate the implementation of subsidies that are fully targeted at high-income groups and excessive consumers.
However, Samirul believes that the most realistic approach in the current situation is to combine several of these measures simultaneously, rather than choosing one method outright.
Through this strategy, protection for the B40 and lower M40 groups who are most vulnerable to the existing cost of living can be maintained, while high consumption is tightened through quota revisions and gradual price increases.
This hybrid measure is considered more practical to balance the people's social protection agenda and the urgent need to strengthen the country's fiscal position from further weakening.
From a domestic impact perspective, any fuel price adjustment is expected to have the most significant chain effect on the logistics sector, food supply, and consumer sentiment. Although the increase of around 10 to 20 sen per liter seems small on paper, fuel remains a basic cost that affects the entire supply chain.
This increase could eventually spread to the entire economy through increased shipping costs, prices of wet goods, ready-made foods, e-hailing services, and operating costs of micro enterprises. However, from a macro perspective, this controlled adjustment can reduce subsidy leakage and ensure that financial assistance is channeled more accurately to groups that really need it.
This view is also supported by IPP Wealth Managers Ltd Director of Investment Strategist and National Economist, Mohd Sedek Jantan, who warned that the government's policy space will become increasingly tight by the middle of this year if Brent prices continue to surge.
According to him, maintaining bulk subsidies is no longer a sustainable approach in the medium term as it affects other important commitments such as national development, debt repayment, and social assistance.
Therefore, accelerating targeted subsidies and implementing price adjustments in phases is seen as the most logical way out for the government.
To reduce the risk of shocks to the market and consumers, Mohd Sedek suggested that the government introduce a clear and transparent trigger mechanism. Through this method, a small additional adjustment of between two to five sen per litre would only be automatically activated if the Brent price surges to a certain level, such as US$110 or US$120 per barrel.
In addition, the subsidy rationalization measure targeting households earning more than RM25,000 per month is believed to be able to produce significant fiscal savings without affecting their purchasing power, as this group has a higher ability to absorb cost increases compared to vulnerable groups.
