[KUALA LUMPUR] Malaysia is committed to reducing petrol subsidies in the second half of the year and is refining its plan as US tariffs darken the economic outlook.
The government “will continue to assess inputs and feedback in refining details” of its fuel subsidy revamp as it actively engages with a wide range of stakeholders, a spokesperson at the Ministry of Finance said.
Prime Minister Anwar Ibrahim in October said that the government would cut subsidies on the most popular petrol in mid-2025, a move that’s expected to save the government RM8 billion (S$2.4 billion) a year.
Policymakers are planning a two-tier price system for RON95 petrol. Anwar said then that only the wealthiest 15 per cent would pay the market rate for it, while the rest will enjoy the current subsidised price.
“The government remains committed to implementing the RON95 subsidy rationalisation in the second half of 2025, and will be sharing further details in due course,” the spokesperson said.
Anwar, who is at the midpoint of his five-year term, faces a juggling act. Lawmakers have urged the government to postpone the move and other adjustments to fiscal policy that they fear would damp business confidence and increase costs for consumers.
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But cutting the subsidies are key to meeting government pledges to narrow the country’s fiscal deficit. A reduction in diesel subsidies in June last year added to the government’s coffers – and was followed by the ruling coalition’s loss in a by-election.
To assuage Malaysians’ concerns, Anwar – who is also finance minister – said in March that a government study showed the planned subsidy cut will not affect 80 to 90 per cent of the population.
A recent decline in global oil prices has made it easier for policymakers to push ahead with the politically sensitive move as disruptions in global trade from US President Donald Trump’s tariffs dim the outlook for Malaysia’s economy.
Officials are seeking to negotiate a deal with Washington within the 90-day pause on higher tariffs mandated by Trump, who has in the meantime imposed a 10 per cent levy on goods from Malaysia and many other trading partners.
Malaysia has already delayed a planned expansion of its sales and service tax that was due on May 1, providing a temporary reprieve for manufacturers. Still, electricity prices are scheduled to rise in July.
The government is confident of achieving its target to narrow the budget gap to 3.8 per cent of gross domestic product this year from 4.1 per cent in 2024, Malaysia Second Finance Minister Amir Hamzah Azizan said in April.
Policymakers are seeking to ensure that the implementation of the petrol subsidy cut is “as smooth as possible for Malaysians and effective in meeting its objectives”, the Ministry of Finance spokesperson said.
“The overarching objective remains clear – to ensure that most Malaysians continue to enjoy RON95 at subsidised price while addressing the leakage of subsidies to foreigners, businesses and the highest income earners,” the spokesperson said. BLOOMBERG
