Malaysia to roll out targeted RON95 petrol subsidy in second-half of 2024

MALAYSIA will start limiting subsidies on the most commonly used variety of petrol to only the most needy from the second-half of 2024, as the government seeks to narrow a budget gap that’s among the widest in South-east Asia.

The country’s richest 20 per cent households, known as the T20, are now receiving 53 per cent of fuel subsidies, Economy Minister Rafizi Ramli said on Monday (Nov 27) in Kuala Lumpur. Such a model is neither sustainable nor equitable, he added.

All Malaysians enjoy subsidies on retail prices of RON-95 grade fuel, as well as diesel and cooking oil. The government also cushions electricity prices, with lower tariffs for most domestic users.

That’s left Malaysia grappling with a hefty subsidy bill, which is anticipated to exceed RM81 billion (S$23.2 billion) this year. The nation is expected to post a budget shortfall equivalent to 5 per cent of economic output this year, the second widest in the region after the 6.2 per cent gap forecast for the Philippines.

“Given our public finances ran a fiscal deficit of more than 5 per cent for 3 consecutive years, we must find new avenues to mobilise our resources and reduce wastages within the system,” Rafizi said in a speech in the nation’s capital. The government is addressing its revenue inadequacy by increasing tax collection, he added.

Restoring fiscal health is key for Malaysia to retain emerging South-east Asia’s highest credit score, and keep investors’ faith at a time when higher US rates have pushed them to ditch emerging-market assets. Prime Minister Anwar Ibrahim has revealed that Malaysia’s debt and liabilities stood at RM1.5 trillion, or 82 per cent of gross domestic product.

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Rafizi added on Monday that the current high interest rate environment is set to peak in 2024, offering Malaysia’s central bank a path to gradually being reducing the overnight policy rate. Economists expect Bank Negara Malaysia to maintain the benchmark interest rate at 3 per cent for the rest of the coming year, extending a rate pause that started in July 2023. BLOOMBERG