The Malaysian government is set to increase diesel fuel prices by approximately 50% as part of a shift away from blanket subsidies to a more targeted approach that benefits those in need. Despite heavily subsidizing fuel, cooking oil, and rice, the subsidy bill has risen significantly in recent years due to surging commodity prices, putting strain on government finances. The diesel subsidy bill alone has increased 10-fold from RM1.4 billion in 2019 to RM14.3 billion in 2023.
By cutting diesel subsidies, the government aims to save around RM4 billion annually, with the intention of redirecting these savings to low-income groups. The Finance Ministry plans to align diesel fuel prices with market prices, with retail prices set to rise to RM3.35 per litre in Peninsular Malaysia. However, prices will remain lower in Malaysian states on Borneo and for eligible logistics vehicles. Different subsidized prices are established based on the category of users, including fishermen, land public transport vehicles, commercial and private vehicles, and an unsubsidized market price.
Cash assistance will be provided to eligible Malaysian individuals with diesel vehicles, small-scale farmers, and commodity smallholders to help mitigate the impact of the price increase on their incomes. Despite the subsidy cuts, diesel prices in Malaysia will still be among the lowest in Southeast Asia, with significant differences compared to neighboring countries such as Singapore, Indonesia, and Thailand. According to Malaysia’s second finance minister, Amir Hamzah Azizan, the move to targeted subsidies aims to prevent smuggling to neighboring countries and misappropriation in ineligible commercial sectors.
The implementation of targeted diesel subsidies is intended to strengthen Malaysia’s financial position in the long term by focusing assistance on those who are eligible. The government aims to address leakages and losses resulting from subsidies that are not effectively targeted. Amir Hamzah emphasized the need to prevent substantial losses that could impact the country’s prosperity. Going forward, diesel prices will be announced weekly according to current practices, and the government will continue to monitor the situation to avoid price instability.
In conclusion, the Malaysian government’s decision to reduce diesel subsidies in favor of targeted assistance reflects a strategy to better manage government finances and assist those in need. By aligning diesel prices with market rates, the government aims to reduce subsidy costs and prevent misuse of subsidized diesel. Cash assistance will be provided to eligible individuals and small-scale farmers to offset the impact of the price increase. The move is part of a broader effort to strengthen Malaysia’s long-term financial position and prevent losses resulting from ineffective subsidy programs.
