Malaysia to cut diesel subsidies, saving $852 million annually

Malaysia will begin cutting fuel subsidies to bolster its fiscal position starting with diesel, a move that will save about 4 billion ringgit ($852 million) annually, Prime Minister Anwar Ibrahim said on Tuesday.

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.

Anwar said savings from subsidy cuts could be re-directed 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,” Anwar said in a televised address.

The diesel subsidy reform will only involve consumers in peninsular Malaysia, he said.
He did not give a date when the subsidy cuts would take effect, saying further details will be announced later.

Malaysia is projected to spend 52.8 billion ringgit on subsidies and social assistance this year, down from an estimated 64.2 billion ringgit in 2023, according to its budget for 2024.

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

Anwar this month announced a 13% hike in salary for civil servants from December, and on Tuesday vowed to pursue a proposed progressive wage policy and other measures to raise incomes.

Anwar said a capital gains tax on the disposal of unlisted shares and other new levies introduced this year will see an estimated 4.5 billion ringgit increase in tax revenue, while electricity subsidy reforms are expected to generate about 4 billion ringgit 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% and 3.5% this year, compared to 2.5% in 2023, after taking into account the planned subsidy and price control adjustments.

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