PUTRAJAYA: Malaysia will stop all subsidies for the widely-used RON95 petrol and diesel beginning Dec 1, Domestic Trade, Cooperatives and Consumerism Minister Hasan Malek announced on Friday.
The move is seen as a bold step that could potentially save the government some 20 billion ringgit (S$7.73 billion) annually, according to Reuters, and easing a budget deficit that is one of the region's biggest as a proportion of gross domestic product.
Datuk Hasan said at a press conference the retail prices for RON95 petrol and diesel will be fixed according to a managed float, similar to the pricing mechanism for the premium RON97 petrol, The Star reported.
Mr Hasan was cited by the report as saying fuel prices for each month would be announced at the end of the preceding month, based on a monthly average.
"We monitor the world petroleum prices everyday to get the average prices," Mr Hasan told the press conference. "As for Dec 1 prices, we will calculate the average from Nov 20 to Nov 30."
A decline in global fuel prices is giving countries including Malaysia, India and Indonesia the chance to scale back subsidies that have contributed to fiscal deficits, Bloomberg said.
Indonesia raised the price of subsidised petrol by nearly 31 per cent on Monday, in a much-anticipated move welcomed by economists and others as a signal of the new government's commitment to reforming South-east Asia's largest economy. The move is expected to save the government more than US$8 billion (S$10 billion) next year.
Chua Hak Bin, an economist at Bank of America Merrill Lynch in Singapore, told Bloomberg that Malaysia's move to cut subsidies was a "great move". "This is a very small window of opportunity given the collapse in international fuel prices, which has basically fallen to the subsidised domestic fuel prices. So if you do it now, it doesn't show up in the sticker price at the pump."
Malaysian Prime Minister Najib Razak, who is also Finance Minister, has pledged to cut expenditure and subsidies to improve the government's balance sheet, as well as expanding the tax base by implementing a 6 percent goods and services tax from April next year.
The ringgit climbed 0.37 percent against the US dollar on Friday, the highest among Asian currencies, Reuters reported. The benchmark stock index ended 0.72 percent lower. Economists were cited by Reuters as saying the government's decision to end fuel subsidies could drive up inflation next month but this would likely be capped due to the slump in global oil prices.
Prices of RON95 petrol and diesel in Malaysia were last increased by 20 sen (S$0.08) on Oct 2.
Senior officials had previously said the government was mulling tiered fuel subsidies based on consumers' income.
On Wednesday, a 20 sen drop in the RON97 petrol price was announced, bringing it to RM2.55, just 25 sen more that the current subsidised RON95 petrol price of RM2.30.