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Five Key Lessons from Malaysia’s 2014 Subsidy Reform Experience (Inglês)

Energy subsidies have existed in Malaysia since the 1980s. From 1983 to 2014, the retail price of any energy product was set by the automatic price mechanism (APM). This regulation made any change in the retail price of energy products extremely difficult. Largely due to a lack of political will and a reluctance to allow the price of energy products to increase according to the APM, the government incurred a high subsidy bill. The subsidies led to economic distortions - they encouraged overconsumption and a waste of subsidized products, as well as leakages across Malaysia’s border spurred by fuel smuggling. Untargeted subsidies intended for low-income households largely benefited industries and higher-income households. In September of 2013, Malaysia’s Government announced a subsidy reform plan, accompanied by an expansion in social protection programs to mitigate the negative impact on the country’s most vulnerable communities. This report provides five key takeaways from Malaysia’s experience.

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