Gov't to cut fuel subsidies

KUALA LUMPUR (AP):

Malaysia's government said yesterday it will cut fuel subsidies for the first time in nearly two years to save 3.3 billion ringgit ($1 billion) annually as part of crucial budget reforms.

Prime Minister Najib Razak said the reductions are needed to trim the budget deficit and strengthen economic fundamentals to boost investor confidence. The financial markets of some Asian countries have come under pressure as the anticipated scaling back of United States monetary stimulus spurs capital outflows from the region.

Najib, who is also finance minister, said the government will cut the gasolene subsidy by 20 sen (6 cents) to 63 sen (19 cents) a litre and diesel by 20 sen to 80 sen a litre effective today.

Malaysia spends 24.8 billion ringgit a year on fuel subsidies. The reductions announced yesterday will reduce that bill by 1.1 billion ringgit for the four months through December and 3.3 billion ringgit next year.

Najib said savings from the subsidy cut will help fund handouts for people on low incomes, which will be announced in the 2014 budget in October.

"It's a process of fiscal consolidation. The market will feel more confident if we can bring down our fiscal deficit," he said.

Malaysia's economy and financial markets face risks from rising domestic debt, a swollen fiscal deficit and a shrinking current account surplus. The central bank recently cut the country's growth forecast this year to 4.5-5 per cent, while Fitch Ratings lowered Malaysia's credit rating outlook to negative from stable, citing a lack of fiscal reforms.