KUCHING: The Socio-Economic Research Centre (SERC) has proposed that the government cap its subsidy for RON95 petrol at RM1 per litre.
The proposed subsidy is about half the current level as part of efforts to preserve fiscal space and keep the budget deficit within target amid persistently high global oil prices.
Its executive director Lee Heng Guie said the government should consider limiting its subsidy commitment and gradually passing on additional costs to consumers if elevated oil prices persist.
“The government needs to bite the bullet. I think RM1 is a reasonable level for the government to maintain,” he said during a media briefing reported by The Edge on Monday (Mar 30).
At present, the government subsidises about RM1.88 per litre for RON95, based on a subsidised pump price of RM1.99 compared to an unsubsidised price of RM3.87. The monthly subsidy bill has surged to around RM4 billion from RM700 million previously.
Lee said such measures are necessary to safeguard fiscal sustainability following rising global crude oil prices, compounded by ongoing geopolitical tensions involving the United States, Israel and Iran.
He added that Putrajaya may also consider a special dividend from Petroliam Nasional Berhad (PETRONAS) this year to support fiscal consolidation.
PETRONAS has announced a RM20 billion dividend payout to the government for 2026. In 2022, the national oil company doubled its dividend to RM50 billion, which included an additional RM25 billion following a government request.
Meanwhile, the government has moved to tighten its targeted subsidy framework under the Budi95 scheme, reducing the standard monthly subsidised quota to 200 litres from 300 litres effective April 1.
Prime Minister Datuk Seri Anwar Ibrahim said the move is necessary to safeguard broader public interest as Brent crude prices have surged past US$100 per barrel — significantly higher than the US$65 assumption in Budget 2026 — pushing the subsidy bill higher.
Despite the adjustment, the subsidised RON95 price remains at RM1.99 per litre, while unsubsidised prices have risen sharply.
Since Mar 11, unsubsidised RON95 has increased by RM1.20, or nearly 45 per cent, to RM3.87 per litre.
At the same time, RON97 has climbed by RM1.90, or almost 59 per cent, to RM5.15 per litre from RM3.25, while diesel prices Malaya have jumped RM2.40, or nearly 77 per cent, to RM5.52 per litre from RM3.12.
SERC warned that if Brent crude remains at around US$100 per barrel — about US$35 above the 2026 budget estimate, Malaysia could gain RM14 billion in additional oil revenue but incur approximately RM33 billion in fuel subsidy costs, resulting in a net gain of RM10.5 billion.
However, this could widen the fiscal deficit by between 0.9 and 1.1 percentage points from the government’s 3.5 per cent target, underscoring the need for subsidy rationalisation and reprioritisation of spending.
Lee said the government may need to recalibrate its expenditure, including subsidy reductions and tapping additional revenue sources, to ensure the deficit remains manageable.
SERC also outlined three economic scenarios based on the duration and severity of geopolitical tensions affecting global oil supply.
Under a baseline scenario, where disruptions last one to two months, Brent crude is expected to range between US$80 and US$90 per barrel, with Malaysia’s gross domestic product (GDP) growth projected at 4.0 to 4.5 per cent and inflation at 2.5 to 2.8 per cent.
In an adverse scenario, involving disruptions lasting three to six months, oil prices could peak at between US$110 and US$120 per barrel before easing, with GDP growth slowing to 3.5 per cent and inflation rising to between 3 and 4 per cent.
A severe scenario, marked by prolonged disruptions beyond six months, could see oil prices surge to between US$140 and US$180 per barrel, potentially pushing Malaysia’s economy into a contraction of about 0.5 per cent and driving inflation as high as 6 per cent.
Lee said current measures are effectively “buying time”, but warned that the government may need to act more decisively if oil prices remain elevated beyond May.
“Nobody knows how much the government wants to subsidise but RM1.88 is already high,” he said, adding that prolonged high prices would leave policymakers with limited options but to recalibrate subsidies.
