KUALA LUMPUR (July 4): Notwithstanding the government’s success in utilising subsidies to tame the country’s inflation, Maybank Investment Banking Group chief economist Suhaimi Ilias said the government may face a dilemma in 2023, as it juggles between using subsidies to curb inflationary pressures and managing its budget deficit.
“The challenge is really next year, in terms of continuing with these subsidies at a time when the government wants to make further adjustments in the budget deficit to GDP [gross domestic product] ratio to go quite sizeably below current (levels), from 6% to 6.5% of GDP," he said.
To recap, in the 12th Malaysia Plan (12MP), the government aims to rein in its budget deficit down to 3% to 3.5% of GDP.
Besides the provision of subsidies, Suhaimi suggested that increasing the wage level is the best way to deal with the issue of higher inflation and high household debt.
He expects the tightness in the current job market will provide some upsides in terms of income growth.
“But to avoid a situation of [a] wage inflation spiral, I think we do need to also accompany those increasing wages with productivity,” he added.
It was previously reported that Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said government subsidy policies have kept Malaysia’s inflation rate in check. The country’s inflation rate hit 2.8% in May.
In comparison, Tengku Zafrul stated that inflation rates in developed countries such as the United States and the United Kingdom have gone beyond 8%. In Thailand, it stood at 7%, while inflation in Singapore and the Philippines have crossed the 5% mark.
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