KUALA LUMPUR: Malaysia’s shift toward targeted fuel subsidies marks a pivotal moment in its economic reform agenda, with diesel subsidy rationalisation laying the groundwork for broader changes, including RON95 petrol.
While politically unpopular, the move is fiscally necessary.
Blanket fuel subsidies have disproportionately benefited higher-income groups, with 35 per cent of diesel subsidies going to the top 20 per cent income earners, said Putra Business School’s Dr Ahmed Razman.
“That’s neither efficient nor fair,” he said.
Rationalisation could redirect billions to priority sectors — education, healthcare, infrastructure — delivering longer-term returns on public spending.
The government’s phased diesel subsidy reform, expected to save RM4 billion annually, has already helped fund cash assistance programmes like Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA), with a combined RM13 billion allocation in 2024.
Prime Minister Datuk Seri Anwar Ibrahim said the effort has curbed leakages and misuse. Diesel sales have dropped 30 per cent since implementation, saving RM600 million a month while maintaining subsidies for public transport, fishermen, and logistics. External pressures are accelerating reform.
Following Trump’s announcement of 24 per cent reciprocal tariffs on Malaysia — now paused for 90 days — policymakers are under pressure to shore up fiscal resilience ahead of potentially tougher global trade conditions.
Dr Muhammad Irwan Ariffin of International Islamic University Malaysia (IIUM) said ASEAN-level coordination is critical.
“Targeted subsidies free up fiscal space and should be tied to broader reforms — progressive wages, industry upskilling, education alignment.”
The government is scaling up support: SARA will now reach 5.4 million recipients from April 1, up from 700,000. Distribution via MyKad has expanded to Sabah, Sarawak, and Labuan.
Both economists acknowledge inflation fears surrounding RON95 rationalisation.
Malaysia’s inflation remains contained at 1.8 per cent, and targeted enforcement with AI-based tracking could limit the pass-through effect to 2–4 per cent.
Dr Irwan stressed the need for intelligent price control systems: “Manual enforcement isn’t enough. We need digital monitoring to curb profiteering.”
At the core of the strategy is PADU — the national database designed to ensure aid reaches the right recipients. While promising, it is incomplete, with only half of adult Malaysians registered.
Full integration with digital ID systems like MyKad remains a key hurdle.
RON95, used by most Malaysians, presents a far larger operational challenge than diesel.
“This will be a massive logistical undertaking,” said Razman.
The government is finalising a two-tier pricing system, with 85 per cent of Malaysians expected to remain eligible for subsidised rates.
But execution alone won’t be enough. Public buy-in is critical.
“This is about trust and long-term equity,” said Razman. “Communications must go beyond policy papers — social media, community leaders, influencers must all play a role.”
Irwan added: “In Islamic economics, intergenerational justice matters. We can’t sustain subsidies today by passing the bill to future generations.”
The MADANI framework — especially its “Raising the Floor” pillar — hinges on this transition: shifting from blanket benefits to precision support while rebuilding institutional credibility.
“This isn’t just a fiscal clean-up,” Razman said. “It’s a chance to reset how we help those who truly need it.” – BERNAMA
