Malaysia spending shows urgency of fuel subsidy cuts

MALAYSIA’S fiscal spending for the first five months of the year underscored an urgent need to reform fuel subsidies so that the country can meet its 2024 deficit target, according to Citigroup.

Government spending from January to May made up 53.9 per cent of its full-year target, higher than similar periods in previous years, Citi’s chief Malaysian economist Wei Zheng Kit wrote in a note on Monday (Jul 1). Malaysia may start to roll back blanket subsidies for the RON95 fuel – its most commonly used petrol – as soon as this month, after shifting toward targeted diesel assistance in June, he said.

Prime Minister Anwar Ibrahim aims to lower Malaysia’s budget deficit to 4.3 per cent of gross domestic product from 5 per cent last year by phasing out broad subsidies, as he looks to attract investments into the South-east Asian country. Malaysia spent about RM81 billion (S$23.3 billion) on subsidies in 2023, with blanket fuel assistance making up the bulk of it.

The government may see additional savings of RM3 billion to RM4 billion this year if they implement a hike of 30 sen per litre for RON95 in July, according to Citi. Authorities said targeted diesel assistance will save the government about RM4 billion annually.

Still, officials are treading cautiously. The 56 per cent overnight hike in diesel prices last month was met with backlash, and Second Finance Minister Amir Hamzah Azizan said last month they would wait until the situation was “stable” before looking into RON95. 

Some analysts projected that the government may delay the RON95 subsidy reforms to end-2024.

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As Malaysia’s diesel subsidy cuts squeeze businesses, all eyes on next target – RON95 petrol

“We will keep our cards close to our chest in the same way we surprised everyone with diesel,” Economy Minister Rafizi Ramli said in a June 26 interview with Bloomberg TV. “We did surprise everyone with the targeted diesel subsidies and I think everyone is up for another surprise.” BLOOMBERG