Malaysia cuts diesel subsidies to curb spending

FILE PHOTO: A view of Kuala Lumpur’s skyline in Malaysia May 30, 2023. REUTERS/Hasnoor Hussain/File Photo

KUALA LUMPUR, Malaysia — Malaysia will end blanket subsidies for diesel starting Monday to cut government spending and curb fuel smuggling into neighboring countries, a government official said.

Diesel prices in Malaysia are among the lowest in Southeast Asia, and smugglers frequently buy the subsidized fuel to resell at higher prices in neighboring countries such as Thailand.

READ: Malaysia announces new taxes, cuts subsidies in tighter 2024 spending plan

But from Monday, “diesel prices at all petrol stations in (Malaysia) will be set at 3.35 ringgit ($0.71) per liter, which is the market price without subsidy,” second finance minister Amir Hamzah Azizan told reporters Sunday.

“We are doing this because the leakages (of subsidized diesel) across our borders is huge,” he said.

The new price will be 55.8 percent higher than the subsidized cost and is expected to save the government 4 billion ringgit ($852.8 million) annually, according to the finance ministry’s data.

Diesel for low-income groups, including fishermen and farmers, as well as for the use of school buses and ambulances, will continue to be subsidized, Amir Hamzah said, adding that the new plan would not lead to an “escalation of prices”.

Analyst Oh Ei Sun from the Pacific Research Center of Malaysia told AFP that the “financial situation must be quite urgent for this government to adopt such an unpopular measure”.

Malaysia also subsidises other commodities including cooking oil and rice, but rising prices have pushed up expenses and hurt the government’s budget.

Malaysia is expected to spend 52.8 billion ringgit on subsidies and social assistance this year, down from about 64.2 billion in 2023, based on its 2024 budget.