Malaysia begins diesel subsidy reforms, prices to rise by about 50% on Jun 10
KUALA LUMPUR: Diesel fuel prices in much of Malaysia are set to rise by roughly 50 per cent on Monday (Jun 10) as the government begins shifting away from costly blanket subsidies to a targeted approach that mainly helps the needy.
Malaysia, which heavily subsidises prices of fuel, cooking oil and rice among other basic items, has seen its subsidy bill rise to record levels in recent years amid surging commodity prices, straining government coffers.
Its diesel subsidy bill alone has risen 10-fold from RM1.4 billion in 2019 to RM14.3 billion in 2023.
The government said last month its plan to cut diesel subsidies this year is expected to save about RM4 billion (US$853.24 million) annually, with the savings expected to be re-directed to low-income groups.
The Finance Ministry said in a statement on Sunday it will begin setting diesel fuel prices to align them with market prices.
The retail price of diesel fuel will rise to RM3.35 per litre starting at midnight at all petrol stations across Peninsular Malaysia, the ministry said. This is the unsubsidised market price based on the May 2024 average according to the Automatic Pricing Mechanism formula.
It will remain at RM2.15 per litre in Malaysian states and territories on Borneo, as well as for eligible logistics vehicles under the government’s subsidised diesel control system.
Lower diesel prices have also been set for fishermen and land public transport vehicles such as school buses and ambulances, the ministry said.
Diesel is sold at four different prices in Malaysia according to subsidy: RM1.65 for fishermen, RM1.88 for land public transport, RM2.15 for commercial and private vehicles, as well as an unsubsidised market price for the commercial sector which reached RM3.60 earlier this year.
The government will provide cash assistance to eligible Malaysian individuals owning diesel vehicles, as well as small-scale farmers and commodity smallholders to mitigate the potential impact on their incomes, the ministry said.
SMUGGLING, MISAPPROPRIATION
Despite the subsidy cuts, diesel prices in Malaysia will remain among the lowest in Southeast Asia, with the fuel retailing at the equivalent of RM8.79 per litre in Singapore, RM4.43 in Indonesia, and RM4.24 in Thailand, the ministry said.
“This situation invites smuggling to neighbouring countries and misappropriation in commercial sectors that are not eligible to use subsidised diesel,” said Malaysia’s second finance minister, Amir Hamzah Azizan.
He said the fixed price and implementation of targeted diesel subsidies would strengthen the country’s financial position in the long run.
“I want to emphasise that what the government is doing today is re-target the subsidy to those who are eligible only. We want to stop the leakages which have resulted in a loss for the people and the country
“Every year, we suffer huge losses and this can hamper the prosperity we deserve. This is a government decision to strengthen the country’s long-term financial position,” he said.
Amir Hamzah added that for the following periods, the diesel price will be announced every week according to the current practice of the Ministry of Finance and that the government will continue to monitor the current situation to avoid price instability.
