Putting off PSP wise due to worries of high cost of living, slow economic growth

Economists say the database on the low-income group needs to be thoroughly scrutinised to ensure only those who are qualified enjoy the petrol subsidies.

KUALA LUMPUR: The decision by the government to postpone the implementation of the Petrol Subsidy Programme (PSP), supposed to be implemented from Jan 1, has elicited mixed reactions from economists.

The domestic trade and consumer affairs ministry had said the postponement was to enable briefing sessions to be continued to create greater awareness and prepare the public for PSP’s implementation.

It said the decision would also provide more time for the registration of subsidy beneficiaries, which will be undertaken by the finance ministry.

On Jan 1, Finance Minister Lim Guan Eng said the government decided to defer PSP’s implementation out of concern that floating petrol prices might impact the people’s cost of living.

Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the suspension of the programme would help mitigate the rising cost of living as RON95 petrol would become pricier under PSP.

He suggested that the government come up with an effective formula to ensure subsidies were given only to the deserving, such as those from the B40 lower-income group.

“The database on the low-income group needs to be thoroughly scrutinised to ensure only those who are qualified enjoy the subsidies via a quick and efficient disbursing mechanism.”

In order to avoid confusion, the government also needs to provide a clearer explanation on the implementation of the PSP, he said.

Additionally, enforcement of existing laws and regulations, especially the Price Control Act 1946, must be tightened to prevent unscrupulous traders from taking advantage of the PSP through profiteering and malpractices.

RHB Investment Bank Bhd head of Asean economics research Peck Boon Soon said he was shocked to learn of the postponement.

Investors generally dislike uncertainty, he said.

In contrast, United Overseas Bank (Malaysia) senior economist Julia Goh said the decision to postpone PSP did not come as a huge surprise because the issue of the rising cost of living remains a constant worry for many Malaysians.

Moreover, headline gross domestic product suggests slower economic growth in the third quarter of 2019, amid the government’s efforts to continue balancing growth and strengthening its fiscal position.

“Even with the PSP delayed, we still expect headline inflation to pick up in 2020, mainly due to base effects, the planned adjustment in water tariffs nationwide and potential pass-through of higher minimum wages across 57 towns and cities,” she said.

Goh projected inflation to edge up to 2.5% in 2020 from an estimate of 0.7% last year.

She said the government can still afford to delay implementing the PSP given the benchmark Brent crude oil price currently stands at US$68 per barrel, higher than the budget assumption of US$62.

Nevertheless, she lauded the government’s targeted PSP as it is seen as being more efficient than blanket subsidies.

IQI Global chief economist Shan Saeed said before the PSP could be implemented, the government had to consider global economic performance, the trade war impact, as well as geopolitical and fuel price movements.

“They need to review the fiscal side of the balance sheet before making any announcement on the PSP,” he said.