THOUGHTS

The Essence of Time

28/06/2022 02:07 PM
Opinions on topical issues from thought leaders, columnists and editors.
Oleh :
Dr Mohd Afzanizam Abdul Rashid

Time is always deemed as a precious resource, simply because it is limited. Once you lose it, you cannot recoup it. Therefore, one would really need to do their due diligence before deciding what they will do with their time.

A finance student would spend a great length of time to understand the importance of time value of money. The longer the time, the greater amount of uncertainties and, as such, more risks premium would be charged.

In the Quran, surah An-Asr describes eloquently the essence of time. Essentially, humans would be at a loss if they do not make use of time wisely. So be patient and do good work. That’s pretty much the gist of it.

In the current context, we are racing against time to make important decisions.

Recognising the problems is always the start and crafting the solution is the next thing to do. Thereafter, it’s about when it should be implemented. Post implementation, it’s about the outcome and identifying gaps which needs to be rectified.

Subsidies

At the current juncture, a lot has been said about rising inflationary pressures which were initially thought to be transitory. Little that we know, the prevailing high prices have become pervasive and persistent.

In this instance, every one of us would look at the government, pressuring it to intervene and to make things right. Therein lies the problem.

According to the Ministry of Finance (MOF), subsidies are expected to skyrocket this year to the tune of RM80 billion. The issue with subsidies is that they are blanket whereby everyone would enjoy it irrespective of income level. Not to mention some “smart” traders who would do the “arbitrage” trade in order to make significant gain.

Whatever the case may be, yes, subsidies have to be revamped and they should be targeted. However, coming up with the right mechanism is also a challenge.

At one point, there was an idea to use the MyKad as a means to distribute fuel subsidies to those who are eligible. Again, if this measure is to be implemented, there is no assurance that one might not abuse it for personal gain.

The market

Leaving it to the market to decide the price would be the best bet. This will relieve decision-makers of the agony to formulate the right mechanism to dish out subsidies which may lead to higher cost of implementation. However, leaving it to the market entirely to decide the right pricing can also be disastrous as there will be elements of asymmetric information, manipulation, hoarding and etc. Hence, the regulatory framework has to be there in order to instil market confidence and credibility.

Certainly, choosing this route, the subsidies have to be phased out. This is where the question on right timing would come into play.

Judging from the latest Consumer Price Index (CPI) print, the inflation rate has gone up to 2.8% year-on-year in May from 2.3% in the preceding month. Further breakdown shows that food inflation is high, at 5.2% from 4.1% previously. Clearly, if the government decides to remove the subsidies it will lead to higher inflation.

The country did experience such a situation during June 2008 when the government decided to cut the RON97 subsidy by RM0.78 per litre at one go. The inflation rate surged to 8.5% in June 2008 from 3.8% in the previous month and such a trend sustained for a number of months.

Learning from past experience, the prices of other goods also tend to stay elevated even when the fuel prices come down; a situation known as sticky-down.

Road map

In a nutshell, seizing the right moment is crucial in order to enact changes. There must be a clear road map so that the situation can be predictable. Above all, a total buy in from our citizens is a must as pushback could delay the reform agenda, leading the stress level to the roof.

So, demonstrating credibility is also paramount in order to show that the government is in control of the current predicament.

-- BERNAMA

Dr Mohd Afzanizam Abdul Rashid is Chief Economist at Bank Islam Malaysia Berhad.

(The views expressed in this article are those of the author and do not reflect the official policy or position of BERNAMA)