Leakage Of Subsidised Fuel Due To Smuggling Threatens National Fiscal Position - Economist

ALOR SETAR, May 26 (Bernama) -- Leakage of subsidised fuel due to smuggling activities continues to pose a major threat to the country’s fiscal position, with the government estimated to be losing billions of ringgit annually following the misuse of subsidised diesel intended for local consumers, according to an economist.

Research Fellow at the Institute of Economic and Financial Policy, School of Economics, Finance and Banking, Universiti Utara Malaysia (UUM) Associate Professor Dr Shazida Jan Mohd Khan said that prior to the implementation of diesel subsidy rationalisation, the government revealed that approximately 6.5 million litres of diesel were misappropriated daily involving smuggling syndicates and irresponsible parties.

She said the situation not only caused government subsidies to “leak” to ineligible parties, but also placed tremendous pressure on national finances as the government had to bear an increasingly rising subsidy bill each year.

“Subsidies that were meant to assist the people are ultimately also enjoyed by irresponsible parties and smuggling syndicates. The biggest impact is the increasing financial burden on the government, narrower fiscal space for national development and ultimately greater pressure on the people’s cost of living,” she told Bernama.

According to her, funds that should have been channelled towards infrastructure development, education, healthcare and social assistance had instead to be used to absorb subsidy leakages, thereby limiting the government’s ability to strengthen the domestic economy in the long term.

Dr Shazida said current global economic uncertainties, including geopolitical tensions, fluctuations in global crude oil prices and inflationary pressures, also require the government to be more cautious in managing fuel subsidies to ensure the country’s fiscal position remains sustainable.

“If economic uncertainty continues, it is not impossible for the government to undertake a more comprehensive subsidy restructuring in future. This situation could continue to place pressure on both the government and the people if measures to curb leakages are not strengthened,” she said.

She said any future changes to subsidy policies must be implemented in a targeted manner so that low- and middle-income groups are not directly affected by rising living costs.

She added that issues relating to subsidy leakages and the effectiveness of targeted subsidy mechanisms are expected to become among the key elements that will receive attention in national fiscal planning, including in the tabling of Budget 2027.

“The government needs to strike a balance between safeguarding the people’s welfare and ensuring the country’s financial position remains stable. At the same time, enforcement against smuggling activities must also be intensified to prevent leakages from continuing unchecked,” she said.

Economic analysts also view a more structured subsidy rationalisation approach as capable of helping the government reduce its annual expenditure burden while ensuring assistance truly reaches the targeted groups in need.

-- BERNAMA