Diesel prices jump 56% as Malaysia revamps decades-old fuel subsidies

Kuala Lumpur, Malaysia — The price of diesel in Malaysia rose more than 50% on Monday as part of a revamp of decades-old fuel subsidies to tighten government spending and save billions of ringgit annually.

The restructuring eliminates general energy subsidies and redirects them to those in need. They are part of economic reforms promised by Prime Minister Anwar Ibrahim, whose government says they are necessary to build a more sustainable economy and cover losses from smuggling cheap oil to neighboring countries.

The plan is bold but risky for Anwar, who takes power in 2022, as it may anger working-class voters fighting rising costs of living. Last month he announced the unpopular decision to cut fuel subsidies to give low-income groups time to prepare for the transition.

“All the prime ministers had earlier agreed on the targeted subsidy, but there was no political will to implement it due to the risks involved. However, to save the country, we have no other option,” said Anwar, who is also the Finance Minister. quoted on Monday by the national news agency Bernama.

The government plans to eventually do the same with gasoline subsidies. Basic commodities such as fuel, cooking oil and rice are heavily subsidized in Malaysia, which has strained national finances for years.

Second Finance Minister Amir Hamzah Azizan announced on Sunday that the price of diesel will rise to 3.35 ringgit ($0.71) a liter on Monday, 56% higher than its previous subsidized price of 2.15 ringgit ( $0.46). He said the price will be reviewed weekly to align with market prices.

The price increase will not apply to Malaysian states on the island of Borneo or eligible logistics vehicles, it said. The lower prices previously set for fishermen and a large fleet of public land transport vehicles, such as school buses, taxis and ambulances, will also remain unchanged.

Monthly cash assistance will also be provided to eligible people with diesel vehicles, including farmers and small commodity owners, the government said. Officials said the increase should not lead to drastic price inflation, as subsidies are still given to specific groups.

Despite the increase, Amir said Malaysia’s diesel price remains the second lowest in Southeast Asia, after Brunei. Diesel costs 8.79 ringgit ($1.86) a liter in neighboring Singapore and more than 4 ringgit ($0.86) in most other countries in the region. It is heavily subsidized at 1.09 ringgit ($0.23) in oil-rich Brunei.

Amir said the targeted subsidies will help reduce the fiscal deficit and the government is expected to save at least four billion ringgit ($850 million) a year. Malaysia’s diesel subsidy bill rose 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 diesel smuggling. It is better to spend the money on improving the quality of life of the people and developing the country,” Amir said.