Malaysian diesel prices rise 56% on restructuring of fuel subsidies

KUALA LUMPUR, Malaysia: Diesel prices in Malaysia surged by more than fifty percent this week as part of a restructuring of decades-old fuel subsidies aimed at tightening government spending and saving billions of ringgits annually.

The subsidy overhaul eliminates blanket energy subsidies and redirects them to those in need. This move is part of economic reforms pledged by Prime Minister Anwar Ibrahim, who asserts these changes are essential to build a sustainable economy and curb losses from smuggling cheap oil to neighboring countries.

Anwar, who took office in 2022, acknowledged the plan's risks, which may anger working-class voters already grappling with rising living costs. He announced the decision to cut fuel subsidies last month to allow lower-income groups time to prepare for the transition.

"All prime ministers before this had agreed on the targeted subsidy, but there was no political will to implement it because of the risks involved. However, to save the country, we have no choice," Anwar said, as quoted by the national Bernama news agency.

The government plans to eventually extend these reforms to gasoline subsidies. In Malaysia, essentials like fuel, cooking oil, and rice have long been heavily subsidized, straining national finances.

Second Finance Minister Amir Hamzah Azizan announced that diesel prices would rise to 3.35 ringgit (US$0.71) per liter, up fifty-six percent from the previous subsidized price of 2.15 ringgit ($0.46). Prices will be reviewed weekly to align with market rates.

The price hike does not apply to Malaysian states on Borneo island or to eligible logistic vehicles. Lower prices for fishermen and public transport vehicles, such as school buses, taxis, and ambulances, will remain unchanged.

Eligible individuals with diesel vehicles, including farmers and commodity smallholders, will receive monthly cash aid. Officials assured that the hike should not cause drastic price inflation since subsidies are still provided to targeted groups.

Despite the increase, Amir noted that Malaysia's diesel price remains the second lowest in Southeast Asia, after Brunei. Diesel costs 8.79 ringgit ($1.86) per liter in neighboring Singapore and over 4 ringgit ($0.86) in most other regional countries. In Brunei, it is heavily subsidized at 1.09 ringgit ($0.23).

Amir emphasized that the targeted subsidies will help reduce the fiscal deficit, with the government expected to save at least four billion ringgit ($850 million) annually. Malaysia's diesel subsidy bill surged from 1.4 billion ringgit ($300 million) in 2019 to 14.3 billion ringgit ($3 billion) last year.

"Malaysia cannot afford to continue losing billions of ringgit due to widespread smuggling of diesel. The money is better spent on improving the people's quality of life and developing the country," Amir said.