Diesel price in Malaysia jumped by more than 50% on Monday as part of a revamp of decades-old fuel subsidies to tighten government spending and save billions of ringgits annually.
The restructuring eliminates blanket energy subsidies and redirects them to the needy. They're part of economic reforms pledged by Prime Minister Anwar Ibrahim, whose government says they're needed to build and more sustainable economy and plug losses from smuggling cheap oil to neighboring countries.
Anwar has been cautious to bring about higher fuel prices, however, with working-class voters are still struggling with rising cost of living. He announced the decision to cut fuel subsidies last month to give time to lower-income groups to prepare for the transition.
The government eventually plans to follow suit with more petrol subsidies. Essentials including fuel, cooking oil and rice are heavily subsidized in Malaysia which have strained national finances for years.
Second Finance Minister Amir Hamzah Azizan announced Sunday that diesel price will rise to 3.35 ringgit ($0.71) a liter on Monday, up 56% from its previous subsidized price of 2.15 ringgit ($0.46). He said the price will be reviewed on a weekly basis to be aligned with market prices.
The price hike will not apply to Malaysian states on Borneo island and eligible logistic vehicles, he said. Lower prices previously set for fishermen and a wide fleet of land public transport vehicles such as school buses, taxis and ambulances will also remain unchanged.
Monthly cash aid will also be given to eligible individuals with diesel vehicles including farmers and commodity smallholders, the government said.
Despite the hike, Amir said Malaysia’s diesel price remains among the lowest in Southeast Asia. Diesel costs 8.79 ringgit ($1.86) a liter in neighboring Singapore and more than 4 ringgit ($0.86) in most other regional countries.
Amir said the targeted subsidies will help cut the fiscal deficit, with the government expected to save at least four billion ringgit ($850 million) annually. Malaysia's diesel subsidy bill surged from 1.4 billion ringgit ($300 million) in 2019 to 14.3 billion ringgit ($3 billion) last year.
“Malaysia cannot afford to continue losing billions of ringgit due to widespread smuggling of diesel. The money is better spent on improving the people's quality of life and developing the country,” Amir said.
