(Bloomberg) -- Malaysia’s faster economic growth and strengthening ringgit are reducing pressure on the government to cut petrol subsidies to meet its deficit target for this year, according to Economy Minister Rafizi Ramli.
The government now has more space to maneuver as it looks to narrow the budget gap to 4.3% of gross domestic product, from 5% last year, Rafizi told reporters in Kuala Lumpur on Monday. He stopped short of ruling out Malaysia would allow prices for RON95 — its cheapest gasoline — to float this year, an unpopular move that could pose political risks to the government.
“With the higher economic growth, that means we have slightly more room to navigate to meet our fiscal glide target,” Rafizi said. “The strengthening ringgit also means less pressure on the subsidy bill.”
Prime Minister Anwar Ibrahim is expected to reaffirm his commitment to fiscal consolidation in the 2025 budget that will be unveiled Friday. Early in his term, he promised to strengthen Malaysia’s finances and reduce government debt from the current level of over 60% of GDP. Cutting subsidies is key to that, but Anwar has yet to specify a time line for tackling RON95, after higher diesel prices in June cost him a by-election.
“We should wait for the budget, and subsequently, the months after that, because certain things have changed,” Rafizi said when asked if the government was scrapping its plan to unwind RON95 subsidies this year.
Rafizi said the government was now in a better position to “balance competing priorities” while moving toward its fiscal targets. The Finance Ministry expects annual growth to surpass its full-year forecast of between 4% to 5% this year, after missing estimates in 2023. The ringgit is the best performer in emerging markets this year, rebounding from a 26-year low reached in February.
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