- 1 day ago
- #considerthis
With oil prices surpassing USD100 a barrel, policymakers are under pressure to balance rising subsidy costs against inflation and public expectations. The government has already moved to adjust fuel subsidies, but questions remain over whether that goes far enough. Does Malaysia have the fiscal capacity to weather a prolonged period of high energy prices? On this episode of #ConsiderThis Melisa Idris speaks with Dr Nungsari Ahmad Radhi, Chairperson of Khazanah Research Institute.
Category
🗞
NewsTranscript
00:10hello and good evening i'm melissa idris welcome to consider this this is the show where we want
00:16you to consider and then reconsider what you know of the news of the day with global oil prices
00:22surpassing a hundred dollars per barrel policymakers are now under pressure to balance
00:26rising subsidy costs against inflation and public expectation so the government has already moved to
00:34adjust fuel subsidies but the question remains whether or not that goes far enough so tonight on
00:41the show we'll explore just how exposed the malaysian economy is and whether we have the fiscal
00:47capacity to weather a prolonged period of high energy prices joining me on the show to help me
00:55think through these topics is dr nung sari amad radi who's the chairperson of kazana research institute
01:00dr nung sari always great to have you on the show i'm i like i like to begin our conversation
01:06maybe
01:06by getting a um your your take how do you understand the current situation in terms of how serious it
01:14is
01:14for our economy i'm just wondering whether you think policymakers are are reading the risks
01:20risks correctly um at the right level of urgency oh i i think uh the i mean in a nutshell
01:29what we're
01:29having uh out of the war in the gulf uh in iran is actually two things there's an immediate price
01:39impact on the prices of uh crude oil as well as gas and other things that that uh complements to
01:45those
01:45things like price of coal have gone up as well uh and that's the immediate thing and then the
01:51secondary thing and perhaps the more uh more challenging uh thing is actually the lack of supply
01:57itself because once you don't have uh flows of oil and gas coming out of the gulf uh most economies
02:05to
02:05the east of the east of the gulf and that includes us uh is having uh shortages of uh crude
02:11oil as well
02:12as gas uh but globally uh the impact is actually uh via the price mechanism so we're having uh i
02:20mean the
02:21war has created this thing is it's far away from us but it is a very serious uh serious uh
02:27problem it
02:28depends um uh very much on the the the length of this conflict and it also defend depends very much
02:37on
02:38the damages that has been done on on on oil and gas infrastructure because even if the the thing this
02:45this war stops today this later this this afternoon it will take months before uh supply normalizes and
02:53hopefully prices will normalize so we have both uh a price issue as well as uh which therefore translate
03:01into cost which includes as you've alluded to cost of subsidies and so on but this is also a real
03:07supply issue we're not getting uh supplies especially countries or economies to the east of the gulf so
03:14it's a serious issue very seriously if if i may zoom out a bit and maybe go back to basics
03:19because
03:20malaysia is both is both an oil producer and an importer a major importer of refined fuel i i'm just
03:25wondering how this this duality complicates malaysia's um exposure in net terms do we benefit from high
03:33oil prices or do we um or do we not no i mean from uh we import um about about
03:4425 of our our our
03:47requirements in terms of production i mean as a whole let's put that in perspective uh as a as an
03:52economy um we use more crude than we produce so that's that's what it is right so in other words
03:59we have to import crude um and uh we import about 25 of our requirements of course our requirements is
04:07more than our own production and of course we produce crude oil by some issue talk to the petronas
04:13guys but as as i understand from briefings we produce a different sort of crude which are actually
04:18light crude the tapis is a light crude and those fetch higher prices and so we sold them we basically
04:26sell them and we import heavier crude so all our refineries most of our refineries are built for
04:33those type of crude uh so we need to we need to have those crude in order to to refine
04:39them into
04:41downstream products you know diesel and petrol jet fuel and and so on so the challenge here is actually
04:48uh securing uh the crude that we need to put in our refinery infrastructure so uh to your question
04:56whether we are we are a net importer of crude just to be just to be clear on that uh
05:02but whether we benefit
05:03more uh from increase in prices or we we we we incur more losses um i'm i'm perhaps on the
05:13um having
05:15the government perspective so actually it's on the cost side so for for for the government it's very clear
05:21that this imposes a very high cost on on on subsidizing those uh pump prices that we have the budi
05:2995.
05:29um well so the government's already gone and uh has announced measures to uh reduce the standard
05:38monthly entitlement of budi 95 um and the prime minister has said that malaysia has enough petroleum
05:45supply to meet domestic demand until at least may so the subsidies will maintain till then but you know
05:51we priced the subsidy cost that was forecast on oil being 60 65 dollars per barrel is now over a
06:00hundred
06:01um is it sufficient that announcement to just minimize slightly the round 95 petrol subsidies is that
06:08sufficient to alleviate whatever fiscal pressure that may be building with the high oil prices should we
06:15be doing more should the government be doing more dr nung sorry to um reduce the subsidy bill yeah because
06:22let's assume for for discussion purposes let's assume that revenues remain the same in other words we're
06:30not gonna we're not put in place new taxes or whatever uh to to raise revenues let's say we have
06:37a revenue cap
06:38so now i think they're monitoring uh the extent to which this crisis uh extends uh they will come to
06:46a
06:46point i think right now the first step is to reduce uh to to address the issue of supply first
06:51right to
06:51lengthen the supply you said the pm announced that we have enough until may so we need to lengthen that
06:57that that that thing and the way to lengthen that is actually by reducing consumption right so we've reduced
07:02from 300 to 200 they might go lower depends on the circumstances and of course the other liver uh
07:10apart from the quantity side is actually the cost side which is actually the price side so right now i
07:16i
07:16i was looking so i'm a uh unashamed uh user of budi 95 was looking at my my my app
07:24i filled up 36 uh liters uh
07:27yesterday uh uh and half of uh i only pay half of the total cost so i i think uh
07:35on the price side of things
07:37this 199 as you said which was derived that and when when crude was about 65 and it's now almost
07:45double and
07:46more than 40 percent uh may it may not be sustainable if we go go go forward uh with this
07:53current regime
07:54uh assuming of course uh revenues are fixed so there will be decisions that have to be made on
08:01trade-offs right if we have the same amount of revenues it depends very much uh if we want to
08:08keep on supporting the prices uh then the question becomes how much can we support uh in terms of price
08:15costs and how much uh can we support in terms of quantity as well well this is you're absolutely right
08:23that there are very tough decisions ahead for policymakers um and i i do hear or feel the um
08:32urgency or even panic coming from from the public when uh policymakers are faced with these trade-offs of
08:40having to balance between rising cost of living and needing to cushion households from that whilst preserving
08:48fiscal discipline in the face of of financial constraints um for the country how what are
08:55the trade-offs here because clearly you know you don't want to let prices increase too much while at the
09:01same time there's a ballooning subsidy bill yeah so i i think i think i mean in the first instance
09:07i i don't
09:07think i think the government is um i think managing it in in a way that not to create a
09:14panic reaction
09:16we we don't want people to be queuing up at at gas stations you know trying to uh fill up
09:22their
09:22tanks uh and whatnot uh so that's that's not good but but there should be enough injection of reality
09:30into into decision makers whether they are in households or firms that make them aware that is the
09:38the potential the possibility of actually either more rationing on quantity being subsidized or or
09:46increase in the price even though it's subsidized price in other words adjusting the amount to be
09:52subsidized the trade-offs that you alluded to you know if we assume fixed revenue then then they have
09:58to come to a point where uh if you spend so much on this you have to take it it
10:05away from other
10:06expenditures so that's the trade-offs right there are other expenditures and besides paying
10:13gaji pension and so on there are other expenditures that the government needs to to spend on so those are
10:19the other trade-offs you know you government has to buy medicine for for for kementerian
10:25kesihatan and government supplies for kementerian uh uh apa nama pelajaran and you know government
10:32themselves are major consumer of petrol you know otherwise the police cannot be patrolling the ambulance
10:38are not working um all the whatever the coastal vessels are not working so those are the trade-offs
10:44that needs to be made i think that they're progressing uh by looking at the situation day by day but
10:52uh like i said even if things are resolved today uh assuming there's no more damage to the
10:57infrastructure in in the gulf it will take some time to to recover from this and we are in no
11:03we
11:03have no control over this perhaps we should be looking at other sources of crude in this side of
11:10the world but in this side of the world nobody is producing crude except perhaps russia right dr nusar i
11:16really like the phrase that you use the we need an injection of reality it's wonderful um so what
11:23advice do you have for for our audience tonight who are trying not to panic but also require this
11:30injection of reality what would you um what would you advise uh our audience tonight in terms of preparing
11:37for the uh economic risks ahead yeah i i think these are extraordinary times actually although we don't feel
11:46it but it's extraordinary times in terms of its fundamental effect on the most fundamental uh
11:52input in the economy which is actually energy so so that's that's the reality i mean there's no
11:57point sugarcoating that so so from a household point of view i think we should be we should be
12:02conserving we should be we should be not spending we should build up reserves you know individual
12:08household reserves uh just in case we need to expand a bit more for firms uh be quite a challenge
12:14because uh
12:15firms that are especially domestic firms small or small medium enterprises micro enterprises uh
12:23there might be second order effects that come in uh if if if a few uh keeps at the cost
12:31that it is
12:31like now uh and and we need to uh i mean conservation is one i think i think the longer
12:38term thing uh
12:39uh is to actually look for alternative stuff i i i i find it such an irony that mr hydrocarbon
12:46mr trump
12:47is actually pushing the energy uh agenda sustainable agenda quite forcefully to the world uh that we
12:55need to be looking at other sources of uh energy and green energy alternative sources of energy otherwise
13:01this whole thing will keep on uh repeating again and and what it what's your sense of how long how
13:09prolonged this could be you mentioned that even even if it's uh if it ends this afternoon we might not
13:15see a recovery in energy prices for a while so what's your sense of how prolonged this crisis is
13:20i don't know i think i think trump is uh will only respond to economic uh market sort of signals
13:26and i think
13:27he knows very well that uh i think pump prices in the u.s are not subsidized i think it
13:32has gone i think more than uh
13:35four dollars now uh and i think there will be a lot of pressure over the weekend you've seen all
13:40kinds of
13:40demonstrations in the u.s itself to put pressure on but i don't know how he's gonna get out of
13:45this
13:45thing you know it's as much iran's call as it is uh the u.s calls um uh for people
13:53like us small economy
13:55that has both we are in better shape than than quite a lot of our neighbors because we have our
14:00own supplies
14:01at least uh so i think people shouldn't panic but people should also be be really realistic in
14:08anticipating that the extraordinary times call for extraordinary measures and sometimes of you know
14:15junctions like this calls us to alter our behavior i mean we can't be having you know melissa we have
14:22800 000 new cars every year um we can't be doing that uh we need to change from that maybe
14:31we should be
14:32this is the time to look at public transportation things of that sort apart from uh renewable energies
14:38alternative sources of energy so those those sort of longer term things as well as shorter term things
14:45shorter term things is just to prepare for for a bit more to build cushion uh padding i understood yeah
14:53there is a an opportunity for reform here in this crisis dr nung sari thank you so much for speaking
14:58to me
14:59dr nung sari ahmad radi from kazana research institute we're going to take a quick break
15:03and we'll be right back on consider this stay tuned
Comments