Malaysia to reduce diesel subsidies and save $852 million a year

KUALA LUMPUR: Malaysia will begin cutting fuel subsidies to shore up its fiscal position, starting with diesel, a move that will save about 4 billion ringgit ($852 million) a year, Prime Minister Anwar Ibrahim said on Tuesday.

Anwar has repeatedly promised to move from general subsidies to a targeted system that primarily helps low-income groups.

Malaysia subsidizes fuel, cooking oil and rice, among other items, but rising commodity prices have seen those expenses rise in recent years, putting pressure on government coffers.

Anwar said savings from subsidy cuts could be redirected to those in need, including cash assistance to eligible diesel vehicle owners such as rice farmers and small traders.

“I caution that any specific subsidy should not be a burden for most people,” Anwar said in a televised speech.

The diesel subsidy reform will only affect consumers in Peninsular Malaysia, he said.

He did not give a date when the subsidy cuts would take effect, saying more details would be announced later.

Malaysia is expected to spend RM52.8 billion on subsidies and social assistance this year, up from an estimated RM64.2 billion in 2023, according to its 2024 budget.

The move to targeted subsidies comes as Malaysia seeks to implement labor reforms and address wage stagnation amid rising prices.

Anwar this month announced a 13 percent pay rise for civil servants starting in December, and on Tuesday promised to implement a proposed progressive pay policy and other measures to boost incomes.

Anwar said a capital gains tax on the disposal of unlisted shares and other new levies introduced this year will generate an estimated 4.5 billion ringgit increase in tax revenue, while investment subsidy reforms are expected to electricity generate around RM4 billion in savings.

Inflation is expected to rise after the elimination of general subsidies.

Malaysia’s central bank projects headline inflation to range between 2 percent and 3.5 percent this year, compared with 2.5 percent in 2023, after taking into account planned subsidy adjustments and price control.

Malaysia posted growth of 3.7 percent in 2023, a sharp drop from a 22-year high of 8.7 percent in 2022. In the first quarter, the economy grew 4.2 percent, beating estimates from analysts thanks to greater household spending and a recovery in exports.

($1 = 4.6900 ringgit)