Fiscal Reforms Give Govt Room To Manoeuvre Amid West Asia Conflict -- OCBC Research

KUALA LUMPUR, March 17 (Bernama) — The government's commitment to fiscal policy reforms over the past few years is bearing fruit, affording it room to adopt a wait-and-see approach amid the conflict in West Asia, according to OCBC Research Group.

Its senior ASEAN economist, Lavanya Venkateswaran, said Malaysia is handling external volatility from a position of strength, as rising global oil prices pose risks to inflation and the fiscal balance, as well as to logistics costs. "The economy is entering this latest bout of global volatility from a position of strength. We expect the 2026 gross domestic product growth forecast range to be announced by (the government) to be 4.5 to 5.5 per cent, while our forecast remains at 4.4 per cent," she said in a research note.

Lavanya said there is some fiscal room to manoeuvre with the government maintaining RON95 subsidies under the Budi MADANI RON95 (BUDI95) mechanism, hence, Bank Negara Malaysia (BNM) will likely hold interest rates through 2026, but “we will continue to monitor the risks to this call.”

She said the government noted that the allocation can be RM2 billion per month to maintain RON95 prices at RM1.99 per litre through the BUDI95 initiative, leading to expenditures of RM24 billion. 

"This is similar to our estimates of the RON95 subsidy bill if global oil prices average US$100 per barrel for 2026. If oil prices hover around the year-to-date average of US$72.7 per barrel, we estimate the subsidy bill to be (about) RM12.5 billion," she added. 

-- BERNAMA