Prioritise country's needs, not outside recommendations, Putrajaya told ahead of 2025 budget

Prime Minister Anwar Ibrahim's government has been reminded not to rely too much on external agencies to introduce economic policies ahead of Friday's budget presentation.

The call relates to the government's decision to remove subsidies, a move that is in line with recommendations of the World Bank and International Monetary Fund (IMF), which have urged governments in developing countries to remove fuel subsidies.

There is speculation that in Budget 2025, subsidies on RON 95, the petrol used by the majority of private vehicles in Malaysia, including low-income group B40 cars and motorbikes, will be abolished.

It follows the removal of bulk subsidies for diesel earlier this year, which sparked protests from traders and small businesses that rely on the fuel.

Putrajaya has argued that the removal of diesel subsidies, the increase in electricity charges and the hike in prices of daily necessities, which had been kept low by subsidies, were necessary to reduce the government's fiscal burden.

Adilah Zafirah Mohd Suberi, a researcher at the IRIS Institute think tank, warned that national interests must take precedence when implementing any economic policy.

"The national budget, which includes taxes, subsidies and pensions, must not come under foreign influence or pressure, such as from the Organisation for Economic Co-operation and Development (OECD) and the World Bank," she told MalaysiaNow.

"Studies and decisions must prioritise national interests and be based on Malaysia's situation and needs."

Adilah said there had been similar concerns over the direction of economic policy when reports indicated that the government was planning to reintroduce the goods and services tax (GST).

"I wonder what we really want and it's not impossible that we will continue to bow to outside influences," Adilah said.

She urged the government to be transparent about the benefits of the various taxes introduced and the restructuring of subsidies.

The World Bank and IMF are among the strongest proponents of subsidy rationalisation, the term used by the government to refer to removal of subsidies.

During the Asian currency crisis in the late 1990s, IMF refused to lend to Thailand unless the government abolished oil and food subsidies.

The body was also at the centre of a political conflict in Malaysia at the time, when then prime minister Dr Mahathir Mohamad revealed that one of the reasons for his fallout with his deputy Anwar was the aid package offered by IMF, which Malaysia rejected.

Anwar claims that the reduction in the government's fiscal burden is to save the country from "bankruptcy", while citing the positive results of structural reforms in terms of ringgit development, investment and economic growth.

Adilah, however, said the government's hasty move had caused pressure.

"Although subsidy rationalisation helps to reduce the fiscal deficit and national debt, it increases inflationary pressures, which affects the cost of living and the cost of doing business," she added.

She cited the example of Nigeria, one of the world's largest oil producers, which last year followed IMF's recommendation to abolish oil subsidies.

The move was praised by the World Bank, which described it as a first step towards macroeconomic stability and the creation of greater fiscal space.

"Ironically, the removal of subsidies, which was intended to reduce the country's financial burden, has only led to an increase in Nigeria's debt. In return for the removal of subsidies, the World Bank lent Nigeria US$800 million to distribute cash to the poor.

"The interest rate will also increase from 1.65% to 3.4% before the final payment," she said.

The restructuring of fuel subsidy by the Anwar government is in stark contrast to the stance his party, PKR, had taken when it was in opposition for more than two decades.

In 2013, PKR MP William Leong had described former prime minister Najib Razak's plan to rationalise fuel subsidies - which led to an increase of 20 sen per litre - as a "failed neoliberal policy".

However, the Selayang MP is now defending a similar approach being pursued by the Anwar government.

He said bulk subsidies and price controls would lead to leakages and stifle productivity and innovation, while adding to the government's fiscal burden.

He said the Budi Madani scheme, one of the mechanisms put in place to pass on diesel subsidies to those entitled to them, was not based on neoliberal policies.

"It has included mechanism to strengthen the social safety net and to improve income enhancing capabilities for the vulnerable groups," he said.

He pointed out that the government has increased the salaries of civil servants and continued the Rahmah cash initiative to provide for the welfare of the people.

On the other hand, Leong said Najib did not have a detailed plan to help vulnerable groups as well as sectors such as transport, industry and agriculture.