Treasury sec-gen: Govt to monitor potential impact from ongoing geopolitical tensions
Treasury secretary-general Datuk Johan Mahmood Merican said the high level of uncertainty due to geopolitical developments in the Middle East may lead to premature conclusions 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.
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$60s last month and recently climbed again amid regional instability.
"But at least, year-to-date, inflation has remained below two 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.
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.
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'Such initiatives could enhance transparency, reduce transaction costs and capture the imagination of tech-savvy investors on the global stage. For example, tokenising real-world assets like sovereign bonds could enable fractional ownership and expand access to retail investors,' Meor Amri noted. Highlighting the challenges for ringgit bonds for 2025, he said a slower-than-expected pace of Malaysia's economic growth could weaken demand for fixed-income assets and curb foreign inflows. 'If the government's budget deficit target is missed, whether due to weaker revenue collection, higher subsidy bills or unplanned expenditure, it may raise concerns over fiscal discipline. 'Another key risk is elevated global yields, particularly in UST. If UST yields remain high, they could offer more attractive, low-risk returns to global investors compared with MGS. This yield differential may lead to capital outflows or reduced foreign participation in the MGS space,' Meor Amri said. Maybank Investment Banking Group head of fixed Income research Winson Phoon Commenting on foreign investors buying into ringgit bonds for the remainder of the year, Maybank Investment Banking Group head of fixed income research Winson Phoon said tariffs are highly consequential to Malaysia's growth prospects but not necessarily the key driver to foreign flows. He said in the medium to long term, ringgit bonds may gain from flow redirection, driven by gradual diversification away from US-dollar assets. 'Foreign flows could remain choppy through the rest of 2025. Fed easing, if materialised, would be conducive to foreign demand for ringgit government bonds. Foreign holdings of corporate bonds are likely to remain small. 'It would be bond-positive if the government can deliver another fiscal outperformance this year, similar to last year. However, a sharp US dollar rebound could sour sentiment and drive outflows from the ringgit bond market,' Phoon said. Phoon is forecasting gross MGS and GII supply of RM168bil and net supply of RM84bil for 2025. For corporate bonds, he is projecting gross supply of RM125bil and net supply of RM38bil.
