KUCHING: Malaysia’s new targeted petrol subsidy, BUDI95, may ease inflation and give households more spending room, but fuel prices alone cannot shield the economy from longer-term cost pressures.
Universiti Malaysia Sarawak (UNIMAS) senior lecturer Dr Dzul Hadzwan Husaini said the six-sen reduction in RON95 to RM1.99 per litre is meaningful given fuel’s universal role in the economy.
“Fuel is a universal consumption item with strong pass-through effects on transport and logistics costs.
“The small savings at the pump free up household budgets for other essentials, slightly boosting consumption,” he told Sarawak Tribune.
He explained that this amounts to a ‘real income effect’, as households enjoy a marginal increase in purchasing power.
However, he stressed that structural drivers such as wage revisions, supply chain rigidities and global commodity volatility will continue to shape Malaysia’s inflation outlook beyond fuel prices alone.
On the 300-litre monthly cap, Dzul noted that it provides about RM600 worth of subsidised fuel at the current rate, which should cover the commuting needs of most urban households.
“For rural Malaysians, who often travel longer distances, the cap may bind more quickly.
“Still, since the entitlement is per individual rather than per household, multi-driver households gain some protection,” he said.
He added that the ceiling helps curb overconsumption and limits moral hazard, while even the unsubsidised rate of RM2.60 per litre keeps Malaysia regionally competitive.
He described BUDI95 as a significant step in moving from blanket subsidies to targeted assistance, likening it to an energy coupon system that is more equitable and efficient.
“For sustainability, the 300-litre threshold must be periodically reviewed in line with commuting patterns, fuel efficiency and income levels. A static threshold risks becoming regressive over time,” he said.
He warned that fiscal risks remain.
“If global oil prices surge, the gap between subsidised and market prices will widen, straining government finances and complicating budget planning unless backed by reforms such as carbon or fuel taxes,” he said.
He added that cross-border fuel trade is another concern.
He said that while foreign users are excluded from subsidies, they may still buy at Malaysia’s market rate, which is lower than in Thailand.
“This generates spillover benefits for local retail economies in border areas, but it may also sustain incentives for fuel smuggling if enforcement is weak,” he said.
