Thursday, 5 September 2013

Fuel Hike! An Act of Appeasing The Higher Authority!

The recent fuel hike of RM0.20/litre for RON95 and Diesel spark a furor among many Malaysians. Most of us voiced our displeasure and criticism via our Facebook and Tweeter accounts. Then there are, also parodies about the price hike, false promises, BR1M criticism and many more being circulated around the internet. As much as we wish for things to be better and cheaper, deep down we are forced to accept that the recent fuel hike is just the start of many more in the near future. 

Today, TheStar published an article with the following headline:

"M'sia needs to do more to alter negative rating outlook"

In this article, our fuel hike is purely caused by the pressure being imposed on us by international rating agency, Fitch. Fitch having downgraded our country's sovereign rating a month ago from Stable to Negative is threatening further rating downgrades if no action is being taken to prevent our debt level from worsening.

Similar to putting up a show, the quickest way for the Government to appease Fitch is through fuel hike. According to estimates, the 20 cent fuel hike could save about RM3.3 billion annual in terms of subsidy. What the Government fail...or intentionally fail to realize is the avalanche impact upon "rakyat" caused by a 10.5% hike in fuel prices. For sure prices of goods and services are expected to rise over the next few months. Mid level as well as lower income families will be cutting down on their spending which would discourage healthy GDP growth. Easily said, the lesser the "rakyat" is willing to spend, the slower our country's economic growth would be. 

So in an act of appeasing Fitch, the Government indirectly created a bigger negative effect upon our slowing economy growth. Not forgetting with increased price of goods and services, inflation is bound to go up in the upcoming months. Read "Indonesia's Inflation Crisis...Malaysians should learn from it!

What amuses me most is that even Fitch is not impressed with the fuel hike measure as clearly stated in this article from TheStar:

Opps..plan backfired dear PM.

Since the fuel hike, our dailies are reporting claims of increase in price of goods, services as well as property. Among the headlines reported are:
1. New property price to increase by 10% due to rise in cost of raw materials used for construction
2. Price for public transportation to increase by 5% - 30%
3. Food price to increase by 0.1% despite assurance by Domestic Trade, Cooperatives and Consumerism

That aside, another point that I would like to point out is the use of savings from the fuel hike to support BR1M scheme. What good is an extra RM500 or even RM1000 per year when the additional expenditure cause by price increase in petrol, food and services are going to exceed that amount in just a few months? How about abolishing BR1M instead to create some savings for the country?

I do not how many more of such hikes/subsidy cuts will be imposed in the future. For sure, such an action can only temporary appease "certain parties", yet it won't address the fiscal issue in the long run. Money saved from subsidy reduction is not considered income if the money is taken from the rakyat. After all it is the rakyat whom have generously loaned the RM500+ billion to you in the first place!

Instead, proper reforms to reduce the debt should be rolled out to encourage economic growth. Effective measures must be introduced to generate external income especially from foreign investment. Be more transparent on how the recouped money is utilized to boost the economy. Bottom line, the end must justify the means for measures taken.


P/s : Despite my blog's title is Invest Made Easy, I've been writing more about our country's economy over the past few months. Some readers whom are searching for investment tips might be put off when greeted with many articles related to the economic situation of our country. The reason I've been placing much emphasis on understanding on our country's economy and finances is because these factors inter relate with investing. Figures such as inflation, GDP, debt level and sovereign ratings should be our key references when it comes to deciding where we should invest our money. Take for example that if the property price increases by an additional 10% because of the fuel hike and you know there might be further hikes in the future, would you still invest into a property?

Understanding and then writing about the economy via this blog has been a wonderful learning experience for me. I hope that you too find awareness, knowledge as well as wisdom that could assist you in making better decisions when it comes to personal finance and investing!

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