Chapter 9 Economic Impacts of Subsidy Rationalization Malaysia (original) (raw)
Related papers
Economy-Wide Effects of Fuel Subsidy Removals in Malaysia
2014
Malaysia has been subsidizing substantially the use of natural gas input in the power sector. From the economic viewpoint, such subsidies result in inefficient energy and electricity consumption while raising environmental pollution and widen the government’s fiscal deficit. Of late, the government has embarked on reducing fuel subsidies as part of her subsidy rationalization program. This paper considers the economy-wide effects of gas subsidy removals within the power sector using the computable general equilibrium (CGE) model with explicit production function for the electricity sector. Results indicate gas subsidy reductions lead to increases in the price of electricity followed by a decline in demand for electricity by other economic sectors. It will also have negative effects on Gross Domestic Product (GDP) and consumer prices. By utilizing a revenue recycling policy, the additional revenue from subsidy removals can be allocated for the promotion of renewable energy within the...
Malaysian Economic Association, 2019
The attempt of abolishing fuel subsidy to alleviate the rising pressure on public finances would pose a threat to the performance of the sectors. This study, therefore, intends to identify the impact of abolishing the subsidies on domestic producers in Malaysia using a Löfgren-based computable general equilibrium (CGE) model. The findings show that the fuel subsidy abolition leads to a significant fall in the level of production, and consequently decreases output allocation for domestic and export markets. Sectors which use relatively large amounts of oil products in production would most likely be hit harder. Besides simulating the impact of abolishing the fuel subsidies, two supplementary regimes (reallocating the extra savings to the agricultural sector to assist the rural poor and transferring direct cash to those who are in need) are incorporated to deal with the decelerating growth in domestic production. Interestingly, raising agricultural investment is found to be more favourable in terms of better performance in the growth of the sector. Thus, it is advisable to include improvement of farming practices in designing policy measures. This study can further serve as a guideline in upgrading the existing subsidy abolition to ensure the performance of the sectors is wholly satisfactory.
The Effects of Fuel Subsidy Removal on Input Costs of Productions: Leontief Input-Output Price Model
Excelling Tech, 2018
The study analyzes the impact of fuel subsidy removal policy on input costs of production sectors in Malaysia by applying the Input-output Price Model using Malaysia Input-output Table 2010. The elimination of subsidy on fuels such as RON95, RON97 and Diesel led to the increase in fuel prices by 32% on average. The increase in fuel prices led to an increase in production input costs for all 66 sectors, where the increase in the input costs of each sector exceeded the hike in fuel prices. There are 4 sectors whose production input costs are higher than the fuel subsidy removal policy namely fishing and aquaculture; transportation and storage; utilities; crops, animal production and hunting; and food products. Input-output price model application is an approach less commonly used in previous studies in Malaysia even though it is the most appropriate model for analyzing the impact of fuel subsidy removal on sectoral input costs. This study shows that the elimination of fuel subsidies has a major impact on the country's inflation and drastic global oil price changes can challenge the Malaysian economic sustainability.
The Impact of Removing Fuel Subsidies on Domestic Outputs in Malaysia
International Journal of Academic Research in Business and Social Sciences
The aim of this study is to examine the impact of ending fuel subsidies on the 19 aggregated sectors in Malaysia. Two alternative complementary policies, including the extra savings' reallocation on agricultural investment and direct cash transfer targeting the poor, were taken into account to mitigate the possible undesirable circumstances under the subsidy removal. To conduct this study, a computable general equilibrium (CGE) model was developed on the basics of the standardized Löfgren CGE model with some appropriate adjustments and assumptions. The empirical results show that the output growth differs considerably across sectors in response to the subsidy removal. On average, domestic outputs decrease. The sectors that consume large amounts of fuel product in their respective production processes, tend to be more vulnerable to this subsidy removal. Nonetheless, an overall improvement in the growth of production is reported by increasing investment on the agricultural sectors compared with the cash transfer. The expansion of agricultural activities demands for more raw materials from other sectors and supply its output as food or as raw material to nonagricultural sectors, bringing an overall economic development. The cash transfer scheme has minimal impact on domestic outputs.
Impacts of Fuel Subsidy Rationalization on Sectoral Output and Employment in Malaysia
Asian Development Review, 2022
Large allocations for fuel subsidies have long put the Government of Malaysia’s budget under great strain. Using a computable general equilibrium (CGE) model, this paper evaluates the impact of fuel subsidy rationalization on sectoral output and employment. Employment is classified into occupational categories and skill levels. Fuel subsidies were measured using the disaggregation of prices for petrol, diesel, and other fuel products. Findings show that removing fuel subsidies would hit economic performance through high input costs, specifically for industries closely attached to the petroleum refinery sector. The manufacturing sector has the largest reduction in output and employment. Nevertheless, high- and medium-skilled labor forces experience increased demand. To increase economic efficiency, the savings from the removal of fuel subsidies should be put toward policies such as sales tax reduction. This study provides useful information for policy makers in evaluating or updating...
Simulating Indonesian fuel subsidy reform: a social accounting matrix analysis
The debate over phasing out fuel subsidies in Indonesia is quite intense. Recent studies pointed out an unfair distribution of subsidies. Besides this, the burden of fuel subsidies to Indonesian government is expected to increasingly continue in parallel with rising fuel consumption as well as international oil prices. However, recent experiences indicated that phasing out the fuel subsidy could potentially result in adverse effects in the economy. Then, the need for comprehensive economy-wide analyses in order to reveal diverse impacts of these subsidies, has emerged. The main objective of this study is to estimate the impacts of fuel subsidies from the economic, social, and environmental perspective, and to propose policy options for a subsidy reform. For this purpose, a social accounting matrix model is employed to simulate the impact analysis. Scenarios including reallocation of subsidy to either other sectors (sectoral subsidy) or income groups (target subsidy) are simulated and the social, economic and environmental impacts of these scenarios are presented. The results show that reallocation of fuel subsidy to other sectors will be able to positively increase the overall economic development, while compromising environmental aspects. The direct reallocation of subsidy to the low income households, on the other hand, will slow down overall economic development but show a positive result for social welfare.
Fuel subsidy reform in Malaysia: An assessment on the direct welfare impact on consumers
2016
This paper investigates the issue of fuel subsidy reform in Malaysia by analysing the direct welfare impact resulting from fuel subsidy removal.Using the Household Expenditure Survey 2004/2005 with a sample of 4227 households, the analysis is carried out by segregating households into 3 different income groups and the welfare impact due to subsidy cut is measured.The results show that the reduction in welfare due to higher price is larger for the middle 40% compared to the top and the bottom 40%.This is due to the fact that the middle 40% has a larger budget share on fuel.Fuel subsidies are found to be costly in protecting poor households due to substantial leakage of benefits to higher income group but the welfare loss for the lower income group due to subsidy cut is somewhat higher in relative term due to the smaller size of their income. Thus, while subsidy reform is undeniably necessary, our findings suggest that it must be carried out cautiously. Our study suggests that the ref...
Jurnal Ekonomi Malaysia
This paper estimated the reactions of firms and households to the change of government expenditure from fuel subsidies to two alternative fiscal regimes, including the expansion of government expenditure on agricultural investment and direct cash transfers. Outcomes brought by the government expenditure changes to outputs of production for firms, together with the household consumption expenditure, were taken into account. This study was carried out by using a Löfgren-based computable general equilibrium (CGE) model. The findings showed that complete fuel withdrawal was found to have adverse impacts on firms and households. The withdrawal of subsidy brought a lackluster performance in domestic production. Firms that needed large amounts of fuel products to produce outputs were greatly affected. Besides, households of all segments faced large consumption loss. Nevertheless, the resulting adverse impacts on firms and households could be minimized with the implementation of mitigation measures along with the subsidy reform. The additional fund transfer to the agricultural sector had the merits of improving domestic production and minimizing the consumption loss of the population. In contrast, the direct cash transfer benefited the target population-the medium-and low-income segments in the urban and rural areas. Keywords: Fuel subsidy withdrawal (removal); computable general equilibrium (CGE) model; government expenditures on agricultural investment; government expenditures on direct cash transfers Kata kunci: Pemansuhan (penghapusan) subsidi bahan api; pemodelan perhitungan kesimbangan umum (CGE); perbelanjaan kerajaan ke atas sektor pertanian; perbelanjaan kerajaan ke atas bantuan wang secara langsung
This paper estimated the reactions of firms and households to the change of government expenditure from fuel subsidies to two alternative fiscal regimes, including the expansion of government expenditure on agricultural investment and direct cash transfers. Outcomes brought by the government expenditure changes to outputs of production for firms, together with the household consumption expenditure, were taken into account. This study was carried out by using a Löfgren-based computable general equilibrium (CGE) model. The findings showed that complete fuel withdrawal was found to have adverse impacts on firms and households. The withdrawal of subsidy brought a lackluster performance in domestic production. Firms that needed large amounts of fuel products to produce outputs were greatly affected. Besides, households of all segments faced large consumption loss. Nevertheless, the resulting adverse impacts on firms and households could be minimized with the implementation of mitigation measures along with the subsidy reform. The additional fund transfer to the agricultural sector had the merits of improving domestic production and minimizing the consumption loss of the population. In contrast, the direct cash transfer benefited the target population --the medium-and low-income segments in the urban and rural areas. Keywords: Fuel subsidy withdrawal (removal); computable general equilibrium (CGE) model; government expenditures on agricultural investment; government expenditures on direct cash transfers Jurnal Ekonomi Malaysia 53(2) 2019 http://dx.
THE IMPACT OF REMOVING FUEL SUBSIDIES IN THE JAKARTA REGION OF INDONESIA
This paper aimed to assist government, both central and local, to develop suitable programmes to support those who would bear the negative impacts of fuel subsidy cuts. Moreover, the study assesses the potential reduction of the fuel subsidy burden on the national budget and estimated Greenhouse Gas (GHG) emission reductions as an outcome of the implementation of policies to remove subsidies. The main objectives of the study were: 1) To assess the impact of the proposed fuel subsidy cut in Jakarta, with possible extension to Bogor, Depok, Tangerang and Bekasi (Bodetabek) area, especially on low income groups, to analyze the impact on the national budget, and to analyze potential GHG emission reductions due to the potentially less use of private vehicles; and 2) To propose recommendations to mitigate the impact of fuel subsidy cuts on low-income groups and for potential use of budget savings due to fuel subsidy cuts. In terms of methodology the study mainly used a Benefit Incidence Analysis (BIA) approach for fuel subsidies in order to map the relationship between the GoI fuel subsidy allocated in Jakarta Area and the distribution of household income levels based on analysis of the Annual National Social Economic Surveys (SUSENAS).