KUALA LUMPUR, Jan 26 — The government raised subsidies on sugar to 54 sen per kilogram at the start of the year from 20 sen to offset high import prices, a government source with direct knowledge of the matter told Reuters today.

The country’s sugar imports are minimal, but raising the subsidy signals Prime Minister Datuk Seri Najib Razak may hold off on reforms ahead of elections that are widely expected this year.

“Government expenditure for sugar will have to go up because there has been tightness in global supplies,” said the government source who declined to be identified due to the sensitivity of the issue.

“The idea is to keep sugar prices stable and affordable for Malaysians,” he added.

Najib has pledged to cut subsidies in the long-term, with the savings aimed at helping the poor who are mostly from his ethnic Malay voter base. The government has been slowly reducing subsidies since June 2010, but at the same time, subsidies on sugar rose at the end of that year, and now again in January.

"Election time is coming up, they are giving more sweets to the masses," said James Chin, a political analyst at Monash University in Malaysia.

"I don't think they are concerned about the fiscal deficit right now."

Najib is widely expected to call for a general election in 2012, a year ahead of schedule. Analysts say his government is more likely to implement major economic reforms if it receives a strong mandate in the polls.

Last year, the government reduced its fiscal deficit to 5.4 percent of GDP and aims to slash it further to 4.7 percent this year as it holds back on developmental spending.

Subsidies on sugar, fuel and flour are expected to rise to a total 33.2 billion ringgit ($10.8 billion) this year from 32.8 billion ringgit in 2011, government projections show. ($1 = 3.0767 Malaysian ringgit) – Reuters