KUALA LUMPUR, Oct 25 — Putrajaya today said it would stop subsidising sugar by the current 34 sen/kg starting tomorrow, in a move that may cause cascading price hikes.
In justifying the move, Prime Minister Datuk Seri Najib Razak said that 2.6 million Malaysians aged 30 and above were suffering from diabetes.
“In relation to that, the government proposes to abolish sugar subsidies by 34 sen effective from October 26, 2013,” Najib said when tabling the Budget 2014 in Parliament today.
Earlier today, Najib also announced an impending Goods and Services Tax (GST), but reassured the public that essential goods such as sugar would be exempted from the unpopular consumption-based tax.
Earlier today, Najib pushed for the implementation of the Goods and Services Tax (GST), but reassured the public that essential goods such as sugar would be exempted from the unpopular consumption tax.
Last year, the government slashed 20 sen/kg from its subsidies for sugar in the Budget 2013, similarly citing the diabetic condition.
The price of sugar, which is a controlled item, had increased a few times in recent years.
In January 2010, the price of sugar went up by 20 sen per kg before going up 25 sen and 20 sen per kg in July and December the same year. It also went up by 20 sen per kg in May 2011.
The government’s move to further reduce sugar subsidies comes after it slashed fuel subsidies last month.
Putrajaya removed fuel subsidies for RON95 petrol and diesel by 20 sen per litre, raising their pump prices to RM2.10 and RM2.00 respectively.
The unpopular move is expected to save the government RM3.3 billion annually if oil prices remain stable.
The fuel subsidy cut announced by Putrajaya last month was seen as a bid to appease global ratings firm Fitch, which cut its outlook on Malaysia’s sovereign debt from “Stable” to “Negative” in July.
The subsidy cuts are, however, set to have a negative effect on Malaysia’s inflation rate.
The latest inflation rate for August 2013 was also recorded at 1.9 per cent.
Bank Negara Malaysia previously announced that average inflation for 2013 has also increased to 1.8 per cent in the second quarter, up from 1.5 per cent in the previous quarter.
Minister in charge of financial affairs Datuk Seri Abdul Wahid Omar also predicted in September that average inflation rate may reach up to 2.3 per cent this year, resulting from the subsidy cut.
In a recent report, the Asian Development Bank warned that inflation would spike if Malaysia proceeds aggressively with its planned subsidy cuts.