The removal of fuel subsidies is a politically sensitive and long-delayed commitment aimed at convincing investors that Malaysia is serious about financial reform, the SCMP reported.
The Malaysian government is studying a two-tier pricing system, where the richest 15% of households buy RON95 petrol at market prices while the rest get the current subsidy, Economic Affairs Minister Rafizi Ramli said. The scheme is expected to save the state 8 billion ringgit ($1.9 billion) a year, although it could also trigger price hikes and lead to higher inflation.
According to Carlist.my, the price of RON95 gasoline in Malaysia during the week of October 17-23, 2024 is 2.05 ringgit/liter, about 12,000 VND. Malaysia changes fuel prices once a week. According to data from Global Petro Price, Malaysia is in the top 10 countries with the cheapest gasoline prices in the world.
“We are prepared for a public backlash. Although the government is ready to explain the rationale for the subsidy reform, it will still be a ‘once in a generation’ decision that will affect everyone,” Mr. Rafizi said in an interview on October 21.
The plan to scrap fuel subsidies has been a long time coming, and how Malaysia implements it will be crucial for Prime Minister Anwar Ibrahim as he seeks to boost investor confidence and avoid the fate of his three immediate predecessors, each of whom lasted less than two years in office. The scrapping of diesel subsidies in June this year cost the ruling coalition a by-election. The risk of backlash is thought to be higher with the scrapping of RON95 subsidies, as Malaysians rely heavily on private vehicles, which require more fuel.
"My hope and our responsibility in government is to make sure that we manage this properly for sustainable growth," Rafizi said, a day after Prime Minister Anwar unveiled a record spending plan to boost the economy.
Although only a fraction of the population will be affected by the higher price of RON95, the Malaysian government expects inflation to average between 1.5-2.5% in 2024 and between 2-3.5% in 2025, Rafizi said. He hopes to avoid a worst-case inflation rate of 3.5% if the government implements a dual-price system for RON95.
Rebuilding financial health is key to Malaysia retaining Southeast Asia’s highest credit score, and keeping investors confident as Prime Minister Anwar seeks to build Malaysia into a global artificial intelligence hub.
