Malaysia to cut diesel subsidies, saving $1.2 billion annually

KUALA LUMPUR – Malaysia will begin cutting fuel subsidies to bolster its fiscal position, starting with diesel, a move that will save about RM4 billion (S$1.2 billion) annually, Prime Minister Anwar Ibrahim said on May 21.

Datuk Seri Anwar has repeatedly vowed to shift away from blanket subsidies to a targeted system that mainly aids low-income groups.

Malaysia subsidises fuel, cooking oil and rice, among other items, but rising commodity prices have seen that expense climb in recent years, straining the government’s coffers.

Mr Anwar said savings from subsidy cuts could be redirected to the needy, including cash assistance to eligible owners of diesel vehicles such as paddy farmers and small traders.

“I caution that any targeted subsidy should not burden the majority of the people,” he said in a televised address.

The diesel subsidy reform will involve only consumers in Peninsular Malaysia, Mr Anwar said.

He did not give a date for when the subsidy cuts would take effect, saying further details will be announced later.

The Straits Times had first reported on the proposed rationalisation of the diesel subsidy on May 3, based on sources.

Malaysia is projected to spend RM52.8 billion on subsidies and social assistance this year, down from about RM64.2 billion in 2023, according to its 2024 budget.

The move to targeted subsidies comes as the country looks to implement labour reforms and tackle stagnant wages amid rising prices.

Mr Anwar this month announced a 13 per cent hike in salaries for civil servants from December, and on May 21 vowed to pursue a proposed progressive wage policy and other measures to raise incomes.

He said a capital gains tax on the disposal of unlisted shares and other new levies introduced in 2024 will see an estimated RM4.5 billion increase in tax revenue, while electricity subsidy reforms are expected to generate about RM4 billion in savings.

Inflation is expected to tick up following the removal of blanket subsidies.

Malaysia’s central bank projects headline inflation to range between 2 per cent and 3.5 per cent in 2024, compared with 2.5 per cent in 2023, after taking into account the planned subsidy and price control adjustments.

Malaysia recorded growth of 3.7 per cent in 2023, a sharp drop from a 22-year high of 8.7 per cent in 2022. In the first quarter, the economy grew 4.2 per cent, beating analysts’ estimates on the back of higher household spending and a recovery in exports. REUTERS