Pengguna perihatin

2008/05/30

BANK ISLAM ECONOMIST: Subsidies should continue

Noor Hayati Muda, BERNAMA
KUALA LUMPUR, FRI:

Several months ago, Rafidah Salleh only need to spend around R100 to buy groceries for a week-long requirement for her family of six, but now the amount has gradually increased to RM120 and it is expected to rise further.

“I go to the same shop for years to buy essentials such as meat, chicken, fish, vegetables, sugar, flour, milk, bread and eggs but of late it has been getting more expensive.

“But what can I do, I still have to buy groceries to cook for my family,” lamented the 43-year-old mother of four children from Ampang.

She is not alone. Her predicament is shared by others. According to economists and consumer associations, Malaysians may have to pay even more for goods in coming months if fuel price in the global market continues to soar.

A senior economist at Bank Islam Malaysia Azrul Azwar Ahmad Tajudin said eventhough fuel prices are subsidised, Malaysians will still feel the impact as indicated in last month’s Consumer Price Index (CPI) which registered an overall hike of about three per cent.
“Three per cent was for all goods but for food alone the average increase was 5.8 per cent and it will continue to go up if fuel prices continue to surge,” he told Bernama.

He said though the prices of some essential items are subsidised by the government, consumers will still feel the pinch, especially low-income earners.

“It is estimated that consumers from the low-income group spend 40 to 50 per cent of their monthly salary to buy food items. If one earns less than RM1,000 a month and about RM500 of it is spent on food, what about other expenses?” he asked.

Azrul explained that despite no change in fuel prices in the country, importers, producers, manufacturers and suppliers still passed on their rising cost down the supply chain which trickled down to consumers.

Hence, he said, the government should continue to pay subsidies, be it for fuel or essential items, for the time being as the mechanism had helped negate the worst for the poor.

“Though it will cause a bigger dent in the government’s budget, at least the people will bear lesser impact. Given the current situation, if the government slashes subsidies, I’ve no doubt we will have a price crisis unless the government comes up with strategies to avoid this,” he said.

Azrul suggested the government reviewed all development projects and prioritise them accordingly to “cover the deep hole in its coffers” caused by increased subsidies.

“It should make a thorough review for every mega project the government has planned, launched or implemented and evaluate its impact on the people, then reconsider whether it can be deferred.

“Then reallocate the budget for subsidies. It’s a radical move, but given the current scenario, it’s a temporary solution,” he said.

Prime Minister Datuk Seri Abdullah Ahmad Badawi said last month the government would review all Ninth Malaysia Plan projects owing to rising costs.

He, however, assured the people the government would not sacrifice
“people-centred” infrastructure and development projects that would benefit the masses, especially the poor.

Last week, global oil price surged to US$138 (RM449) per barrel and based on this Deputy Prime Minister Datuk Seri Najib Tun Razak had said the government would have to review subsidies given to fuel and essential goods.

The government had previously estimated that RM56 billion would be spent on subsidies this year.

Following Najib’s announcement, many groups were worried of another round of fuel price hike which would further worsen inflation.

Another economist, Senator Prof Datuk Dr Ismail Mohd Salleh, told Bernama it was not impossible for the government to reduce subsidies and at the same time ease some of the burden to people who could ill-afford it.

“The government can introduce a system or a mechanism that benefits only people who really need it, maybe by giving coupons and food stamps. Some of these methods are being implemented in developed nations to help the poor,” he said.

Another way, according to Dr Ismail is by liberalising the market for controlled items and let more people to import and produce price-controlled items such as sugar, flour and rice and letting the market control the prices.

Fomca chief executive officer Muhammad Sha’ani Abdullah said the consumer body believes prices of goods, especially food, could be controlled if the government gave subsidies directly to farmers and other food producers.

“Agriculture is a costly business and this is made worse by the fact that most of our farmers are small-scale. So, if the government subsidises, for example, fuel for their machinery, it will help lower the production cost.

“Or subsidise the price of the machinery and make it affordable for these farmers to buy it which will help increase their productivity,” he said.

Sha’ani said although consumers are paying more for their essentials now, it did not benefit food producers like farmers and padi planters who are low-income earners.

He opined that the current practice of giving subsidies to end-users did not serve its purpose to help the poor as it benefited all, the rich and the poor.

Muhammad Sha’ani however pointed out that regardless of the steps taken by the government to control today’s inflation, at the end of the day it was smart consumerism that would help Malaysians “weather” the situation.

“Now is the time for us to practise smart consumerism. Differentiate what you need and what you want.

“Buy only the necessities and spend less on what you want but can do without,” advised Muhammad Sha’ani, adding that the government could only intervene to a certain point.