Malaysian Subsidy (2007)
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Transcript of Malaysian Subsidy (2007)
MALAYSIA’S ECONOMIC SCENARIO:
SUBSIDY RELATED ISSUES
By:
Economic Planning Unit Prime Minister’s Department, Putrajaya
MALAYSIA’S ECONOMIC SCENARIO:
SUBSIDY RELATED ISSUES
By:
Economic Planning Unit Prime Minister’s Department, Putrajaya
17 January 2008 FO
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Briefing Outline
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Overall Performance, 2006-2007
Growth Scenarios for MTR 9MP: o Assumptionso The Demand Sideo The Supply Sideo The Balance of Paymentso The Public Sector Accountso Policy Issues o Possible Risks
Subsidy Related Issues
Conclusion
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THRUST 5• Enhancing Delivery System
•Governance• International Cooperation
• Public Private Sector Collaboration
THRUST 1• High value added activities• New sources growth• Accelerating Investment
THRUST 2• Human Capital• Education• R & D / S & T• Skill training
THRUST 3• Addressing poverty• Corridor development• Rural development• Equitable Wealth Distribution
THRUST 4• Infrastructure Development• Energy• Environment• Sports & Culture
MACROECONOMIC TARGETS
• Sustainable GDP growth• High per capita income• Low unemployment• Low inflation & price stability• Fiscal prudence• BOP current account surplus
VISION 2020VISION 2020
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The 9MP : Overall Performance, 2006-2007
Original Target, 2006-2010
Achieved2006-07
Real GDP growth (% p.a.)
6.0 1 6.02
Per capita GNP (RM) 3 23,573 22,569
Per capita GNP (US$) 3 6,273 6,448
PPP Per capita GNP (US$) 3 13,878 13,274
Inflation (% p.a.) Low 2.6
Current A/C of BOP (% GNP) 3 13.4 14.9
FG account (% of GDP)
-3.4 -3.2
1 Constant 1987 Prices 2 Constant 2000 Prices 3 End of period
Scenarios
Definition
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Growth Scenarios: MTR 9MP
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World output growth 2008-
2010 : 5.0% p.a 1
World trade growth 2008-
2010 : 7.0% p.a 1
Oil prices to remain highOil prices to remain high 2008 : USD85 per barrel 2008 : USD85 per barrel 22 2009 & 2010 : USD80 per 2009 & 2010 : USD80 per
barrel barrel 22
World inflation expected to
remain low despite high oil
price
Growth projection in line
with potential output
2.0 2.02.12.32.32.3
4.8
5.4 5.24.8 5.0 5.1
7.5
9.2
6.6 6.77.2 7.2
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2005 2006 2007 2008 2009 2010
World Inflation World Output (GDP) World Trade
% Growth
Assumptions Assumptions
1 IMF WEO October 2007 2 IMF WEO 2007 (Update November ’07) 6
Fiscal policy is supportive of economic
growth Gradual reduction on oil subsidies MTR 9MP to remain supportive of private
sector initiatives
Sustainable growth with low inflation & Sustainable growth with low inflation &
price stabilityprice stability Higher contribution of TFP to growth, higher Higher contribution of TFP to growth, higher
efficiency of capital & productivity of labourefficiency of capital & productivity of labour
Current account of BOP to remain positiveCurrent account of BOP to remain positive New sources of growth from services, New sources of growth from services,
manufacturing & agriculture sectorsmanufacturing & agriculture sectors
Assumptions Assumptions
7
0
2
4
6
8
10
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
2007200820092010
6.06.06.06.1
6.06.47.17.3
6.07.98.08.1
Low Baseline High
The Growth Scenarios : Challenging the 6% 9MP target . .
Projections
Baseline: 7.0% p.a.
High: 8.0% p.a,
Low : 6.0% p.a.
2008-10
Achieved
6.0% p.a.
2006-07 % Growth
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The Demand Side . . .
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Achieved2006-07
Growth Projections (%)
2008-10 2006-10
Consumption 8.0 7.8 7.9
Private 8.6 8.1 8.3
Public 5.8 6.7 6.3
Investment 7.7 10.6 9.4
Private 7.7 11.6 10.0
(RM bil.) nominal
132.3 288.9 421.2
Public 7.7 9.5 9.0
Exports 5.2 5.6 5.5
Imports 6.8 7.1 6.9
GDP 6.0 7.0 6.6
GDP by Expenditure : Accelerating private investment & sustaining exports
Scenarios
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The Supply Side . . .
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Achieved2006-07
Growth Projections (%)
2008-10 2006-10
Agriculture 3.4 5.4 4.6
Mining 1.5 4.3 3.2
Manufacturing 4.8 5.2 5.1
Construction 2.3 7.7 5.5
Services 8.3 8.5 8.5
Government Svs 7.2 7.5 7.3
Bus. & Non Gov. Svs 8.5 8.7 8.6
Elect. gas & water 4.7 5.5 5.2
Transport & comm. 7.3 8.4 8.0
Dist. Trade, hotels, etc
9.6 9.4 9.5
Finance, insc., etc 10.3 9.4 9.7
Other Services 5.0 7.0 6.2
GDP 6.0 7.0 6.6
GDP by Industry of Origin : Generating higher growth in the services, manufacturing & agriculture sectors
V added A Based
Scenarios
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The Balance of Payments . . .
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RM billion
9MP Target(2010)
Achieved2006
Target
2008 2010
Goods (Trade Balance) 149.8 134.6 123.0 129.3
Exports 804.8 589.7 641.5 731.0
Imports 654.9 455.2 518.4 601.7
Services (net) -4.5 -6.9 -2.6 -0.4
Transportation -26.7 -19.6 -20.4 -19.1
Travel and Education 34.4 23.5 31.5 32.6
Other Services -11.9 -10.4 -13.1 -13.2
Government Transactions -0.4 -0.4 -0.6 -0.6
Income -39.5 -17.4 -19.1 -24.4Compensation of Employees
-1.3 -0.3 -1.3 -1.1
Investment Income -38.3 -17.1 -17.8 -23.3
Current Transfers -14.5 -16.9 -17.4 -19.4
Current Account Balance 91.2 93.4 83.9 85.1
(% to GNP) 13.4 16.8 12.5 10.4
The BOP: Reducing the services deficits By Quarter
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The Public Sector Accounts . . .
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The implications of higher than RM200 billion DE & PFI RM20 billion … full implications to been seen in 10 MP & beyond
Malaysia PlanDevelopment Expenditure (RM million)
PFI (RM
million)
Deficit as % of GDPOutstanding Debt as % of GDP
(End of Period)
Average End of Period
8th MP 170, 000 - -4.6 -3.6 44.09th MP Target 200, 000 20, 000 -3.4 -3.4 48.6
MTR 9MP (Baseline DE200 b)
200, 000 20, 000 -3.5 -3.8 42.6
MTR 9MP (Baseline DE215 b)
215, 000 35, 000 -3.9 -4.0 43.5
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Policy Issues …
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Policy Issues : The Demand Side Enhancing private investment
Accelerating domestic investment & FDI Lack of complementary facilities in promoted
areas - international schools, hotels, exorbitant land & property prices, recreational facilities
Competitive tax & non-tax incentives Delivery system Public security & quality of life
Addressing the slowdown in exports (declining share to world exports – current growth contributed by high oil price)
Accelerating exports of services – professional &
consultancy 18
Policy Issues : The Supply Side Agriculture
Weakness in the implementation of
agricultural HIP Private sector participation is not moving
fast enough Manufacturing
Transition to high value-added E&E & biotech subsectors has not shown significant impact
Transport equipment industries need to venture exports market aggressively
Discourage labour intensive activities in line with policies to reduce foreign workers 19
.. con’t Policy Issues : The Supply Side Services
Tourism industry – maximize its potential contribution to growth
Further enhance potential export of other
services Health tourism must be promoted as a
package Professional & consultancy services Creative industry including animation &
contents development
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Policy Issues : The BOP Addressing the slowdown in
exports - declining share to world exports
Need to increase contribution of services account Travel & education Transportation Professional & consultancy
services
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High dependency on oil revenue : increasing non-oil revenue
Further enhance the revenue base to sustain revenue growth
Strengthen the fiscal discipline to prioritize and ensure cost effectiveness of expenditures
The exercise control on OE growth – OE growth outpaced revenue since the 7MP
Policy Issues : Public Sector
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Subsidies to be reviewed to reduce financial burden as well as promote productivity & competitiveness
Ensure value for money through tender system & competitive bidding
Any additional PFI should be compensated with a reduction in DE in the next Malaysia Plan
... con’t Policy Issues : Public Sector
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Possible Risks …
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Possible Risks . . . Slowdown in world economic growth
impacts of sub-prime crisis to US & other major economies
prospects of China after the 2008 Olympic
High oil price High inflation Geo-political risks Lower private investment Occurrence of large-scale disasters
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Subsidy Related Issues …
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Energy subsidy refers to action by government that :
i. lowers the cost of energy production; orii. raises the price received by energy producers; oriii. lowers the price paid by energy consumers.
Subsidy will lead to loss of economic efficiency such as :
i.reduce incentives to conserve or use energy more efficiently;ii.reduce incentives to minimize costs, resulting in less efficient plant operation and investments that may otherwise not be economic;iii.Direct subsidies in the form of grants or tax exemptions act as a drain on government finances; andiv.Price caps or ceilings below market-clearing levels may lead to physical shortages and a need for administratively costly rationing arrangements.
IEA’s DEFINITION ON SUBSIDY
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Subsidy on petroleum products (gasoline, diesel & LPG) for transportation sector and household
Subsidy on gas for power and industrial sectors
Subsidy on other items (cooking oil, paddy. etc.)
Subsidy Related Issues: Types of Subsidies &
Beneficiaries
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Extent of Subsidy
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PRODUCTS SUBSIDISED PRICE
NON-SUBSIDISED PRICE
(market price)
ESTIMATED AMOUNT OF
SUBSIDY/YEAR(RM billion)
Gasoline for transport sector
192 sen/litre 277.25 sen/litre
RM15.0 billion*Diesel for transport sector
158 sen/litre 239.64 sen/litre
Gasoline for fishery sector
100 sen/litre 277.25 sen/litre
Diesel for fishery sector
100 sen/litre 239.64 sen/litre
Natural gas for power sector
6.40/MMBTu RM26.00/MMBtuRM18.0 billion
Natural gas for industrial sector
11.32 – 12.87/MMBtu
RM38.39/MMBtu
Other subsidy RM 2.4 billion
* 2005
Other Subsidy
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Sector2005 (RM Million)
Agriculture (Paddy Price Subsidy) 626.1
Small Entrepreneur Fund 440.4
Education (text book etc) 787.6
Transport (Toll compensation etc.) 474.8
Orang Asli 33.0
Total 2,370.9
Gas Subsidy
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Period Subsidy (RM Billion)
May 1997 – Mac 2007
Total 58.2
Power 48.8
Non-Power 9.4
Maintain price stability
Lower cost of doing business
Enhance competitiveness
Maintain low inflation
Attract foreign direct investments
... con’t Subsidy Related Issues: Positive effects
32
Create market distortion
Lead to leakages – not for the targeted groups
Create artificial supply shortage
Intensify smuggling & hoarding activities
Lead to inefficient allocation & utilisation of resources
Increase subsidy burden
Affect socioeconomic development
... con’t Subsidy Related Issues: Negative effects
33
Should the Government continue or discontinue with subsidy?
... con’t Subsidy Related Issues: Next Question
34
Re-define the targeted groups
Re-determine the level of support
Adopt market-based pricing on a gradual basis
Intensify enforcement
... con’t Subsidy Related Issues: Way forward
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Conclusion …
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Conclusion The present level of subsidy is not sustainable.
An urgent need to gradually move to market base pricing.
Reduction of subsidy has to be done on a gradual basis to reduce the impact and allow sufficient time for end-users to make adjustment.
Certain level of subsidy may need to be maintained. Target groups need to be determined. Savings from subsidy reduction can be productively
channeled towards socioeconomic development.
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Terima KasihTerima Kasihwww.epu.gov.mywww.epu.gov.my
38
The implications of higher than RM200 billion DE & PFI RM20 billion … full implications to been seen in 10 MP & beyond
Malaysia PlanDevelopment Expenditure (RM million)
PFI (RM
million)
Deficit as % of GDPOutstanding Debt as % of GDP
(End of Period)
Average End of Period
8th MP 170, 000 - -4.6 -3.6 44.09th MP Target 200, 000 20, 000 -3.4 -3.4 48.6
MTR 9MP (Baseline DE200 b)
200, 000 20, 000 -3.5 -3.8 42.6
MTR 9MP (Baseline DE215 b)
215, 000 35, 000 -3.9 -4.0 43.5
MTR 9MP (Baseline DE230 b)
230, 000 80, 000 -4.0 -4.3 42.8
MTR 9MP (Baseline DE250 b)
250, 000 80, 000 -4.5 -4.8 43.8
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RM billion
9MP Target (2010)
Achieved
2006
Target
2008 2010
Revenue 152.1 123.5 148.5 158.7
Operating Expenditure
135.7 107.7 130.3 148.6
Current Account 16.3 15.9 18.2 10.1
Gross Development Expenditure
41.7 35.8 47.4 44.9
Overall Balance -24.3 -19.1 -28.5 -33.8
% to GDP -3.4 -3.3 -4.1 -4.0
Federal Government Financial Position : DE RM215 b PFI RM35 b
Scenarios HBL
Higher deficit if there is revenue shortfall … 40
-5.7 -5.2 -5.3 -5-4.1 -3.6 -3.3 -3.2
-4.1 -4.4 -4.0
-100
-50
0
50
100
150
200
250
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
-10
-5
0
5
10
15
20
25
Deficit (% to GDP) Revenue OE (RM bil.) DE (RM bil.) Deficit (RM bil.)
OE (RM b.) -LHS
Revenue (RM b.)- LHS
DE (RM b.) - LHS
Overall Deficit (% to GDP) - RHS
Overall Deficit (RM b.) - LHS
Actual Forecast
% to GDPRM bil.
Revenue, OE & DE, 2000 – 2010DE RM215 b + PFI RM35 b
Debt 41
Conclusion The 6.0% growth scenario is achievable
The baseline scenario with real GDP growth of 7.0% p.a. 2008-2010 must be supported by concrete measures
The 8.0% growth will strain the economy Achieving a continuously narrowing fiscal
deficit will be a challenge, hence the need to enhance fiscal prudence
Reducing the level of subsidies would contribute towards socioeconomic development
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