Analysing the Impacts of Cooking Oil Subsidy Reform in Malaysia: A Computable General Equilibrium Approach

Research Grant, 2023

Abstract

Subsidies and price controls are among the important policy toolkits for managing the economies of developing countries and Malaysia is no exception. The cooking oil subsidy was meant to minimize the living cost of households by reducing the purchasing prices of the daily used cooking oil, especially to support the consumption of B40 households in Malaysians. However, this universal cooking oil subsidy had been widely abused, and not benefiting B40 households as expected. Currently, Malaysian government would provide subsidies on cooking oil packed in 1kg polybags priced at RM2.50 each for the quota of 60,000 tonnes per month, that is 720,000 tonnes per year. The total demand from the whole Malaysia is about 660,000 tonnes per year based on data published by the Ministry of Plantation and Commodities (2022). Therefore, the government not only provided sufficient subsidised cooking oil for B40 and M40, but also for all Malaysian income groups. However, there is still shortage of subsidized cooking oil supply, because they had been widely abused by higher income groups (KPDNHEP, 2022; MPIC, 2022), industrial and commercial parties, and smugglers (KPDNHEP in Penang, 2022; Special Task Force on Jihad Against Inflation, 2022). In other words, the government expenditure for per kilogram (kg) cooking oil subsidy ranges from RM2.50 to over RM3 depending on the current prices. Thus, the allocated subsidies are not a paltry sum. RM500 million was spent in 2020, RM2.2 billion in 2021, and RM4 billion in 2022. Despite the huge government subsidy expenditure, the government has made great efforts to monitor and inspect the whole implementation procedure of cooking oil subsidy, which will lead to extra operating expenditure to address the problems caused by subsidies.

Project Leader