In a significant move to tighten government spending and revamp fuel subsidies, Malaysia saw a sharp increase in diesel prices by over 50% on Monday. This restructuring is part of economic reforms initiated by the Prime Minister to redirect subsidies to those in need and build a more sustainable economy. The decision to cut fuel subsidies, announced last month, aims to save billions of ringgits annually and address losses from smuggling cheap oil to neighboring countries.
The government's plan to eliminate blanket energy subsidies is a bold but risky move, especially for the Prime Minister, as it may impact working-class voters already grappling with the rising cost of living. The transition is being phased in to allow lower-income groups time to adjust to the changes.
The recent increase in diesel prices to 3.35 ringgit per liter marks a 56% hike from the previous subsidized price. The government plans to review prices weekly to align them with market rates. However, certain groups, such as those in Malaysian states on Borneo island and eligible logistic vehicles, will be exempt from the price hike.
Despite the increase, Malaysia's diesel prices remain among the lowest in Southeast Asia, with subsidies still provided to targeted groups. The move is expected to help reduce the fiscal deficit, with annual savings projected to reach at least four billion ringgit. The diesel subsidy bill had surged significantly in recent years, prompting the government to take action to curb losses from diesel smuggling.
Officials emphasized that the targeted subsidies will not lead to drastic price inflation and will include monthly cash aid for eligible individuals with diesel vehicles, such as farmers and commodity smallholders. The government's aim is to redirect funds towards improving the quality of life for its citizens and advancing the country's development.
