WORLD BANK: FLOAT PRICES GRADUALLY
Sudden removal can cause inflation to rise by as high as 9pc, says economist
THE sudden removal of fuel subsidies can have an impact on inflation and, thus, it is more appropriate to gradually float prices to reduce the impact on vulnerable groups, said the World Bank.
Senior economist Shakira Teh Sharifuddin said the sudden removal of fuel subsidies could cause the inflation rate to rise by up to nine per cent.
She said effective communication was also necessary to ensure that all parties were clear about the implementation of targeted subsidies and their impact.
“This has been communicated to the Economy Minister Rafizi Ramli and the Finance Ministry,” she said in an interview.
Also present was World Bank economist Deisigan Shammugam.
Shakira said in addition to good implementation mechanisms accompanied by effective communication, the removal of fuel subsidies should be accompanied by cash assistance to affected households to reduce the impact on vulnerable groups.
“Providing cash assistance to the affected households is important. I think this is one of the reasons why the Economy Ministry has established the Central Database Hub (Padu), which is so as many eligible households as possible could receive government assistance.”
Commenting on views that cash assistance could lead to dependence on government aid, Shakira said internal studies by the World Bank showed that cash assistance was effective in reducing inequality and narrowing the poverty gap.
She said it was important to determine the target groups and the amount of cash assistance.
“What we see from Padu is to identify households that are eligible for assistance,” she said.
Last week, Rafizi was reported as saying the government would announce the mechanism of the subsidy rationalisation mechanism within weeks.
He also revealed that 11.6 million individuals, or 52.6 per cent of Malaysians aged 18 and above, had registered with Padu.