Asian Angle | Malaysians need more help to cope with diesel subsidy cuts and rising costs

The end of diesel subsidies has compounded Malaysians’ cost-of-living woes, even as it has relieved the pressure on state coffers

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The price of diesel is seen at a petrol station in Kuala Lumpur last month. Photo: EPA-EFE

Published: 3:00pm, 14 Jul 2024

On June 1, Malaysia removed subsidies on diesel, a necessary measure to reduce the burgeoning diesel subsidy bill of 14.3 billion ringgit (US$3 billion) last year – up from 1.4 billion ringgit in 2019 – and stem leakages from diesel smuggling.

Diesel prices in Peninsular Malaysia, where the change took effect, increased by 56 per cent, from 2.15 ringgit to 3.35 ringgit. This is still the third cheapest in Southeast Asia, after Brunei and East Malaysia. The subsidy remains in place in the latter, due to greater travel distances and higher costs.

Past governments had discussed fuel subsidy rationalisation and faced political fallout when taking drastic action. In 2006, fuel price increases by then prime minister Abdullah Badawi, in tandem with steeply rising global prices and a mounting subsidy bill, triggered protests. The ensuing popular dissatisfaction contributed to the Barisan Nasional administration losing its two-thirds majority for the first time at the March 2008 general election.

The government of Prime Minister Anwar Ibrahim is showing courage in phasing out fuel subsidies, starting with diesel. The timing of the move allows for potential public discontent to subside before the next general election, due by early 2028. While the government says that it saves 4.5 million ringgit (US$960,000) per day with the decision, it is still offering about US$1.5 billion in subsidies to the 33 listed categories of commercial vehicles eligible for subsidies, including school buses and ambulances, to prevent unnecessary price increases.

Eligible commercial diesel vehicle owners must obtain a fleet card to access subsidised diesel. Commercial diesel, which is used for industry and should be delivered directly to the business and not pumped at stations, is unsubsidised. The government claims that it has plugged the leakage of subsidised diesel used by industry, as shown by the increase in commercial diesel sales by 4 million litres per day following the introduction of the new system. Concurrently, diesel sold at petrol stations fell by 8 million litres per day, or 30 per cent, compared with the week before.

Protesters hold placards outside the Malaysian prime minister’s official residence in Putrajaya to demand lower diesel prices. Photo: EPA-EFE

The government announced that savings from the price increase would be used to support poor families through various forms of social help and that targeted subsidies would still be available to those who qualify under the subsidised diesel control system. Low-income private diesel-vehicle owners will pay the full price at the pump but may apply for a monthly cash payout of 200 ringgit to help cover the cost.