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       PETALING JAYA: Malaysia is expected to record a higher petroleum revenue this year due to soaring commodity prices, but the revenue will be largely offset by the sharp increase in total subsidies.

       Despite the huge fiscal burden caused by subsidies, MIDF Research urged the government to retain the current fuel subsidy scheme to avoid a spike in domestic inflationary pressure.

       Assuming an average price of US$110 (RM479.22) per barrel for Brent crude oil in 2022, MIDF Research projects the country’s petroleum revenue to increase from RM35.3bil in 2021 to RM72.1bil.

       The country’s total subsidies, on the other hand, is expected to increase to RM42.2bil in 2022 compared with RM18.2bil last year.

       “With US$110 (RM479) per barrel and the US dollar-ringgit (exchange rate) to average at RM4.09 in 2022, we estimate that the government will need to cover a 55% margin of estimated actual RON95 price of RM3.18 per litre.

       “With these forecast figures, presumably fuel subsidy cost could be between RM25bil and RM30bil this year,” said the research house in a note yesterday.

       Fuel subsidy refers to the amount spent by the government to maintain ceiling prices for RON95, diesel, liquified petroleum gas (LPG) and cooking oil.

       Currently the government capped the prices of RON95 and diesel at RM2.05 and RM2.15 per litre respectively.

       Meanwhile, LPG prices are capped at RM1.90 per kg, and the price for 1kg cooking oil pack is fixed at RM2.50.

       MIDF Research cautioned that there will be “serious negative implications” on Malaysia’s inflationary pressure, should the retail fuel prices be floated.

       It also said that a rise in food prices is inevitable following the effects of the Russia-Ukraine war, which pushed up global commodity prices and widened Malaysia’s food imports bills.

       At the current RON95 price, the research house estimated that Malaysia’s headline inflation will increase by 2.9% when food inflation rises by 5%.

       A 10 sen cut in RON95 would only bring down the inflation to 2.6%, with the food inflation at 5%, it added

       If global food supply remains limited, prices of edible and portable items would jump by 10% and thus may lead overall inflationary pressure to reach 8.9%.

       “Judging from the current cost-led inflation trends and component weightages, we firmly believe that the government would not consider removing its current fuel subsidy scheme.

       “Such moves to remove fuel subsidies would cause the producer price index to surge at double digit rate especially in the environment of elevated global energy prices,” MIDF Research said.

       It is noteworthy that Finance Minister Datuk Seri Tengku Zafrul Tengku Abdul Aziz has said in March 2022 that the current fuel subsidy will be reviewed in favour of a targeted programme for the needy.

       This was following the sharp rise in global crude oil prices.

       He said that the government could be paying up to RM28bil in subsidies for petrol, diesel and LPG for 2022, as the Russian-Ukrainian war has pushed crude oil prices over US$100 per barrel, the highest level seen since 2014.