Heavy spending on subsidies was limiting Putrajaya’s ability to develop the country, Prime Minister Datuk Seri Najib Razak said today regarding a recent series of unpopular cost-cutting measures.

Saying that the country must be more efficient in managing its resources, Najib said that “too much” was being currently being set aside for price support schemes.

“Imagine this, we are spending almost RM49 billion for development. But for subsidies and incentives we have set aside RM40 billion,” he said.

The financial burden is taking a toll on economic growth and the country’s aspiration to achieve a developed nation status by 2020, said Najib during the Ministry of Finance’s monthly assembly here today.

Najib reiterated today the need for the government to roll back subsidies in stages, pointing out that the government spent an estimated RM24.8 billion on fuel subsidies last year.

“Long ago, crude oil subsidies were RM3 billion to RM4 billion a year but it has increased exponentially in recent years and it is no longer possible to keep the price at the same level with growing consumption,” said Najib.

According to the International Monetary Fund research data, only 7 per cent of blanket fuel subsidies in developing countries reach the bottom 20 per cent of households, while 43 per cent of the subsidies end up benefiting the richest 20 per cent.

Today, Najib said the moves were not taken to intentionally burden the public and said the government will channel some of the savings back to the people through targeted aid programmes such as the 1 Malaysia People’s Aid (BR1M).

“If Malaysia wants to surpass the middle income trap, subsidy rationalisation is necessary for economic restructuring,” said Najib, who is also the finance minister.

Since September last year, Putrajaya has embarked on aggressive cost-cutting measures after pressure grew for it to rein in a chronic budget deficit that traces back to the Asian Financial Crisis of 1997, and which has left Malaysia’s national debt at just below a critical legal ceiling.

Among others, the government has reduced fuel subsidies, removed the price control for sugar and increased the excise tax for tobacco.