Thursday, June 5, 2008


Fuel prices decision good for economy, say economists


Economists have described the Government’s decision to increase fuel prices as good for the nation’s economy in the long term. “It’s a short-term pain, but a long- term gain, in terms of better economic stability and reducing the imbalances,” said RAM Consultancy Services’ Chief Economist. Dr Yeah Kim Leng. He said the increase was basically to ease Malaysia’s fiscal position so that in the longer term, it would be more efficient and better prepared to cope with rising prices. “No doubt the 40 per cent increase is the biggest jump in the history, it’s significant and sizeable, but if it is properly channel for development projects and for the improvement of public transportation, the public will be able to support it,” he said when contacted. Prime Minister Datuk Seri Abdullah Ahmad Badawi announced yesterday that petrol and diesel prices will go up by 78 sen and RM1 per litre respectively at Wednesday midnight. The new price for petrol at the pump would be RM2.70 per litre and diesel, RM2.58 per litre. Dr Yeah said the Goverment had no choice but to allow the price to increase as it had been holding back such a move or adjustment since one and a half years ago, despite the higher fuel prices. “It has resulted in the budget deficit to go to an unsustainable level. So today, you see a 40 per cent adjustment, which is significant but it still comes with some form of subsidy,” he said. He said the Government’s immediate challenge would be to handle public reaction to such a sharp rise in fuel prices. “For the middle and higher income groups, the increase will not be significant and will only slightly dampen their demand. They can afford it but with a reduce in saving, which means, real income will be lowered. “For the lower income group, the Government’s proposal for the rebate was a relief as it would be help them cope with the increase. They will be a reduction in spending too and definitely there will be impact on the consumption,” headded. He expects the increase in food prices would be moderate. Meanwhile, economist Prof Dr Mansor Jusoh said the cash rebates to Malaysians who owned private cars or motorcycles would benefit the middle and lower income groups. Under the cash rebate scheme, a total of RM625 per year will be given to owners of private cars of engine capacity of up to 2,000cc and pick-up trucks and jeeps of up to 2,500 cc. Owners of private motorcycles of engine capacity of up to 250cc will be paid a cash rebate of RM150 per year. Prof Mansor, however, said that the benefit of the cash rebates would not be felt by the poor who had no vehicles but had to face the increase in the price of essential items following the fuel price increase. He suggested that the Government put in place a special mechanism to help the poor. Prof Mansor said the Government’s decision to maintain the price of liquefied natural gas and natural gas at RM1.75 per kg and 63.5 sen per litre respectively, would benefit the power-generation industry. “So, the electricity tariffs should not increase and Tenaga Nasional Bhd should be able to absorb the fuel price increase in the global market,” he said. The increase would however impact the public transporation in major cities and towns, he added. “People will now think twice before buying a car because of the costlier fuel,” he said. In this context, he said, the Government should give attention to improving public transportation, especially the commuter services which often the subject of complaints among the public. - Bernama