Malaysia braces for ‘once-in-a-generation’ petrol subsidy rollback

The stakes are high with RON95 subsidies – Malaysians are so reliant on private transport that vehicles outnumber the population

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A man fills the tank of a car at a petrol station in Kuala Lumpur. Photo: AFP

Published: 9:08am, 21 Oct 2024Updated: 1:14pm, 21 Oct 2024

Malaysia’s government is bracing for a public backlash as it commits to rolling back petrol subsidies mid-2025, a politically-sensitive and long-delayed pledge that’s key to convincing investors that it is serious about fiscal reform.

The government is mulling a two-tier price system for the country’s most-widely used fuel, so that the wealthiest 15 per cent pay the market rate for RON95 petrol while the rest enjoy the current subsidised price, Economy Minister Rafizi Ramli said on Saturday. That’s expected to save the government 8 billion ringgit (US$1.9 billion) a year – though it could also trigger second-round price increases and lead to a surge in inflation, he said.

“We are prepared for the choppy waters ahead,” Rafizi said in an interview to be broadcast on Monday. While the government has spent time readying the masses and explaining their reasoning for the subsidy reforms, “it’s a once-in-a-generation decision that affects everyone’s lives.”

Anwar Ibrahim, Malaysia’s prime minister and finance minister, delivers the 2025 budget speech at parliament in Kuala Lumpur on Friday. Photo: Malaysia Department of Information via AP

It’s a plan years in the making, and how Malaysia navigates it will be crucial for Prime Minister Anwar Ibrahim as he looks to lift investor confidence while avoiding the fate of his three direct predecessors, each of whom lasted less than two years in office. Anwar needs to balance the interests of various political parties that make up his coalition government.

Rolling back diesel subsidies in June was followed by the ruling coalition’s loss in a by-election. While it rebounded in two subsequent polls, the stakes are higher with RON95 – Malaysians are so reliant on private transport that vehicles outnumber the population.

“My hope, and our responsibility in the government, is to make sure that we manage this properly so that it is sustainable,” Rafizi said, a day after Anwar unveiled a record spending plan to boost the economy.

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Rafizi Ramli, Malaysia’s economy minister

Inflation is the government’s biggest concern, according to Rafizi, even though only a fraction of the population will be subjected to higher RON95 prices.