KUALA LUMPUR: The government may end up leaning on Petroliam Nasional Bhd (Petronas) for special dividend to help plug the subsidy bill and keep the broader fiscal deficit around the six per cent of gross domestic product (GDP) as first budgeted, OCBC Bank said.

Its economist Wellian Wiranto said without a shift to a more targeted subsidy from the current blanket approach, Malaysia's subsidy bill in 2021 might reach RM28 billion (1.7 per cent of GDP) versus RM11 billion (0.7 per cent of GDP) in 2021.

"While the (commodity price) upsurge is felt across the commodities complex, the pertinent one remains that of the price of crude oil, given how it filters most pervasively throughout all economies.

"To that end, even a net oil-and-gas producer such as Malaysia is not spared. Although the price surge benefits its trade balance and fiscal revenues, it will have to choose between a rise in fiscal expenditure if it keeps the fuel subsidy and an inflationary wave if it does not." 

As it stands, Wellian said the government was opting for the middle ground, floating the idea of a more targeted subsidy scheme that allows only the poorer households to enjoy discounted fuel, rather than the current blanket approach.

He added that given the large gap between real and subsidised prices – the RON95 fuel sells at RM2.05 a litre although it costs RM3.70 or 80 per cent higher – potential leakages from some transactions could not be dismissed.

"Having access to the Petronas pot would be especially important, given that it remains unclear how the targeted subsidy scheme would work in practice," he said in a report.

Wellian said the pass through of high commodity prices to domestic inflation should remain relatively muted for Malaysia should the government decide to implement a more targeted subsidy scheme than the current blanket approach.

The subject of special dividend is no surprises for the national state-owned oil and gas company.

In 2019, under Pakatan Harapan-led government, Petronas paid an additional RM30 billion in special dividend, pushing its total dividend commitment to RM54 billion.

This was in order to help the government plug in the repayment of the Goods and Services Tax (GST) and income tax refunds of RM37 billion.

In 2021, Petronas declared an additional RM7 billion dividend to the government, which brings the annual sum to RM25 billion for the year.

The dividend payment in 2021 exceeded the groups' initial target of RM18 billion.