KUCHING: Rising oil prices are forcing Malaysia into tougher fiscal choices, with delay only raising the eventual cost.
Senior Lecturer at the Department of Economics, Faculty of Business and Economics, Universiti Malaya, Dr Goh Lim Thye, said the recent escalation of conflict in the Middle East, particularly around the Strait of Hormuz, had shown how quickly external shocks could reshape domestic economic realities.
He said oil prices had surged from around USD65 to USD70 a barrel to above USD110, at one point nearing USD120, turning what might seem like a distant geopolitical crisis into direct economic pressure at home.
“For Malaysia, the impact is immediate. Higher energy prices feed into transport costs, food prices and government spending through subsidies, at a time when total expenditure already exceeds RM420 billion and the fiscal deficit is targeted at around 3.5 per cent of gross domestic product,” he added.
According to him, Malaysia’s fuel subsidy bill has risen to about RM3.2 billion a month, more than four times earlier levels. If sustained, he said, that could exceed RM35 billion a year.
He said the latest oil shock had therefore made an already delicate fiscal balance much harder to maintain. What had once appeared manageable was now a major pressure point.
“At this stage, there are no painless options. Maintaining subsidies helps cushion households, but adds to fiscal strain and borrowing needs,” he added.
“Reducing them may help contain the deficit, but pushes up living costs.”
He argued that the government cannot absorb rising global costs indefinitely, as continued subsidies must ultimately be funded through either higher revenue or higher borrowing.
“That raises a question that is often avoided: whether the public is prepared to accept higher taxes to preserve the same level of subsidies,” he stressed.
“Otherwise, the burden shifts to borrowing, which would eventually have to be repaid through future taxation or reduced public spending,” he elaborated.
If current conditions persist, he warned, the consequences will not remain abstract.
“Higher borrowing today means higher interest payments tomorrow, leaving less room for healthcare, education and development while passing today’s obligations to future taxpayers,” he said.
He stressed that timing matters.
“When adjustment is delayed, fiscal pressures accumulate, deficits widen, debt rises and the eventual correction becomes sharper and more difficult,” he added.
“The effects do not stop at the national level. Higher energy prices flow directly into household budgets through more expensive transport, food and daily essentials.”
In response, he said, families may have to reassess spending, cut discretionary expenses, delay major commitments or seek additional income, reflecting the same constraint faced at the national level.
He likened it to a household that continues spending more than it earns by relying on debt.
That may be manageable for a time, he said, but the longer adjustment is postponed, the harder it becomes.
“In a world shaped by global uncertainty, it is increasingly unrealistic to expect stable prices, low inflation and generous subsidies to coexist indefinitely, especially when many of the forces driving costs are external and beyond any single country’s control,” he added.
What remains within control, he said, is the response.
“Higher costs must be matched by higher revenue, reduced spending or borrowing, each with its own consequences.
“The central issue was no longer whether adjustment would happen, but whether it would be made early and deliberately, or later under greater strain,” he opined.
“For governments, that means fiscal sustainability. For households, it means financial resilience.”
