Johan: Government to closely monitor potential impact from ongoing geopolitical tension
KUALA LUMPUR — The government is closely monitoring the ongoing geopolitical situation and its potential impact on the Malaysian economy, particularly in the wake of the Sales and Service Tax (SST) expansion.
Treasury Secretary-General Datuk Johan Mahmood Merican said the high level of uncertainty due to geopolitical developments in the Middle East draws a premature conclusion on how it might influence inflation and the cost of living domestically.
'I do recall back when we had the Ukraine war, there was just so much uncertainty. We don't know to what extent the situation may escalate and how that might impact the economy.
'Initially, we had thought that the Russia-Ukraine war would not affect us much because we do not have much trade with either country. We were quite wrong. It turned out that Ukraine was the major supplier of feed. Therefore, we suddenly saw an increase in agricultural inputs, which impacted prices,' he said at the Concorde Club session today.
Johan said given the ongoing conflict is in the Middle East, there will be some impact on oil prices, one of the key factors in Malaysia's inflation outlook.
He said oil prices have been fluctuating significantly, having started the year in the mid-US$70 range, dipped to the low US$60 last month and recently climbed again amid regional instability.
'But at least, year-to-date, inflation has remained below 2.0 per cent thus far. We saw a Maybank estimate of an impact of 0.25 per cent on the consumer price index (CPI) as a result of SST.
'Our internal estimates are in that order of magnitude as well. But if the situation escalates, we certainly need to see how that impacts in terms of economic growth,' he said.
For now, Johan said the ministry will continue to monitor developments and adjust its economic strategies as needed to maintain price stability and protect Malaysians from sudden cost-of-living pressures.
The expanded SST to improve national fiscal stability without overburdening the public is set to take effect from July 1, 2025.
The government expects additional SST to increase by RM5 billion in 2025 and by RM10 billion in 2026 following the review and expansion of the tax scope.
On RON95, Johan said the government remains committed to rationalising fuel subsidies through a targeted approach, with the implementation of RON95 petrol subsidy reforms anticipated in the second half of 2025.
'The exact timing and structure are still subject to Cabinet decision,' he said.
He said the move mirrors earlier reforms undertaken for electricity tariffs and diesel subsidies, which introduced tiered pricing mechanisms to protect lower and middle-income groups while curbing leakages. — BERNAMA
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