(Bloomberg) -- Malaysia’s economy clocking a faster than expected growth this year could provide Prime Minister Anwar Ibrahim room to postpone a plan to cut blanket subsidies for the country’s most widely used gasoline, according to Maybank Investment Bank Bhd.
Malaysia could still achieve its aim of narrowing the fiscal deficit to 4.3% of gross domestic product this year even if Anwar delays unwinding RON95 subsidies to 2025, according to Maybank Investment Chief Economist Suhaimi Ilias. This is especially if annual GDP exceeds the official 4% to 5% forecast, as that would translate to more revenue, he said.
Such prospects look exceedingly likely. Maybank sees an upside risk to its current projection of 4.7% growth, according to Suhaimi, and it will review the forecast once the final second quarter GDP figures are released next month. Analysts at Citigroup Inc. already raised their forecast for Malaysia’s growth to 5.2% after the nation reported a faster-than-expected expansion last quarter.
“The economy is essentially firing on all cylinders,” said Suhaimi in a briefing Tuesday. If the subsidy cuts are pushed to next year, Malaysia’s inflation will average closer to 2% in 2024 compared to Maybank’s current estimate of 2.4%, he added.
Malaysia in June replaced blanket diesel subsidies with targeted assistance to save 4 billion ringgit ($855 million) a year — a move that caused pump prices to jump 56% overnight and trigger public backlash. Still, the effect on headline inflation remains minimal for now. Consumer prices rose 2% for the second straight month in June, according to the Department of Statistics Malaysia, lower than the median estimate of a 2.2% gain in a Bloomberg survey.
The impact from unwinding RON95 subsidies would likely be more substantial, but Anwar has yet to commit to a time line, saying he would focus on the smooth implementation of the diesel reforms first. Analysts from Citigroup to RHB Investment Bank Bhd are increasingly betting that the government will shelve the move to end of this year, at the earliest.
(Updates with June inflation data in the fifth paragraph.)
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