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Analyst says diesel subsidy rationalisation could boost stock market, country's sovereign rating

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Publish date: Thu, 23 May 2024, 04:57 PM

KUALA LUMPUR: Hong Leong Investment Bank Bhd research believes the diesel subsidy rationalisation will help boost the stock market as it signals yo investors that the Madani government is pushing through with its economic reforms.

In a note today, it said the move could also be a tailwind for Malaysia's sovereign rating.

On Tuesday, Prime Minister Datuk Seri Anwar Ibrahim announced that the cabinet gave the greenlight for targeted fuel subsidies, first for diesel and then followed by RON95, with no timeline provided.

For now, these fuel subsidy reforms will only involve Peninsular Malaysia and not Sabah and Sarawak.

HLIB research estimates that the expected RM 4 billion annual savings from targeted diesel subsidies translates to 0.2 per cent of gross domestic product (GDP) versus the government's fiscal deficit target of -4.3 per cent for 2024 and -3.5 per cent to -3.0 per cent for 2025, based on the 12th Malaysian Plan Mid Term Review, and 29 per cent of total diesel subsidies.

"While the quantum of subsidy removal wasn't stated, we reckon that the inflationary impact should be manageable as diesel only accounts for 0.2 per cent of the Consumer Price Index (CPI) basket and logistics and public transport sectors will continue to be subsidised under subsidised diesel control scheme (SKDS). We estimate that every RM0.10 increase in diesel price would raise the CPI by more than 0.01percentage point on a full year basis.

Diesel subsidies will continue to be provided to businesses that use diesel motored commercial vehicles involving 10 types of public transport vehicles and 23 types of goods transport vehicles under the SKDS.

This will include bus and taxi operators, while selected categories of fishermen will also receive it.

Apart from that, the government will also offer cash assistance to private owners of diesel vehicles that qualify - including small farmers, paddy farmers and small traders.

The firm said while consumer discretionary spending might be affected by the increase in fuel prices, this impact is expected to be temporary, as seen in previous instances.

Additionally, it said there could be a mitigating effect from the Employees' Provident Fund (EPF) Account 3 and the upcoming salary increase for civil servants.

"Though data from the pre-pandemic decade did not show any inverse relationship between fuel consumption and price, it could be different this time around given the wider public transport network available (e.g. completion of MRT1&2, LRT extension),  potentially softening volumes for Petronas Dagangan Bhd.While we see higher fuel prices having limited impact on auto sales (if any), this should encourage the adoption of electric vehicles (EV)," it said.

 

https://www.nst.com.my/business/economy/2024/05/1054388/analyst-says-diesel-subsidy-rationalisation-could-boost-stock

Discussions
Be the first to like this. Showing 7 of 7 comments

speakup

yup and PH lose GE16. hahahah!

3 weeks ago

chinaman

why gomen still holding on to GLC using tax payee money????

3 weeks ago

chinaman

time to evaluate how GLC beneficial to poor citizens except for big belly directors??

3 weeks ago

EngineeringProfit

Can use them to bribe politicians, launder $$,$$$,$$$,$$$ etc etc

Posted by chinaman > 16 minutes ago | Report Abuse

time to evaluate how GLC beneficial to poor citizens except for big belly directors??

3 weeks ago

EngineeringProfit

Government-linked corporations (GLCs) are gateways to inefficiency, corruption, and money laundering.

1. **Inefficiency**: GLCs can suffer from bureaucratic inefficiencies due to their close ties with the government. Decision-making processes in these corporations are often slower, as they are subject to political considerations and regulatory constraints that do not typically burden private sector companies. This can lead to delays, higher operational costs, and an overall lack of competitiveness compared to their private counterparts.

2. **Corruption**: The intersection of government and business in GLCs can create fertile ground for corruption. Political interference in corporate governance can lead to appointments based on political loyalty rather than merit, resulting in a lack of accountability and transparency. This environment can foster corrupt practices such as bribery, embezzlement, and kickbacks. When government officials have vested interests in these corporations, there is also a greater risk of conflicts of interest and favoritism in the awarding of contracts and business opportunities.

3. **Money Laundering**: GLCs can be used as vehicles for money laundering due to their complex structures and the significant flow of funds they handle. The close relationship with government entities can provide a shield against regulatory scrutiny, making it easier to conceal illicit financial activities. Additionally, the international operations of many GLCs offer opportunities to move and launder money across borders under the guise of legitimate business transactions.

4. **Lack of Accountability**: GLCs often lack the same level of scrutiny and accountability as private sector firms. They may be subject to less rigorous auditing and regulatory oversight, particularly if there is a perception that they are protected by the government. This lack of oversight can enable corrupt practices and financial mismanagement to go unchecked for extended periods.

5. **Political Patronage**: The presence of political patronage in GLCs can undermine their efficiency and integrity. Politicians may use these corporations to reward loyal supporters with jobs or contracts, regardless of their qualifications or the impact on the corporation’s performance. This can result in a workforce and management team that is more focused on serving political interests than on achieving business goals, further entrenching inefficiency and corruption.

6. **Economic Distortions**: GLCs can distort market competition by benefiting from preferential treatment such as subsidies, government bailouts, and exclusive contracts. This can create an uneven playing field, discouraging private investment and innovation. Over time, the lack of competitive pressure can lead to complacency and inefficiency within GLCs.

3 weeks ago

chinaman

diesel rationalization to cut off rich and foreign workers from subsidy. what about bloated civil servants and crony directors in GLC? holy cow for vote banks so untouchable? till now, there is no real reform must be fair and comprehensive ma

3 weeks ago

chinaman

The state government has found itself on the back foot following allegations of preferential treatment in the tender process after it was revealed that youth and sports minister Hannah Yeoh’s husband, Ramachandran Muniandy, is the CEO of Asia Mobility Technologies Sdn Bhd, one of the companies selected.

3 weeks ago

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