RON95, Diesel Price Float Could Save Government RM29 Billion In Subsidies

In light of recent fuel subsidy mechanisms being looked into by the Malaysian government, Hong Leong Investment Bank (HLIB) predicts that floating RON 95 petrol and diesel prices in Malaysia could save the government RM29 billion in fuel subsidies.

However, this would result in a significant increase in fuel prices: 64% for RON 95 gasoline and 61% for diesel fuels.

Subsidised fuels, RON 95 petrol and Euro 5 B10 as well as B20 diesel, have remained unchanged since the end of September 2023, with prices at RM2.05 and RM2.15 per litre, respectively.
According to HLIB, subsidy reforms are even more important now that the goods and services tax (GST) has been abolished if the fiscal deficit target in the 12th Malaysian Plan mid-term review is to be met.

"We envision this to entail floating fuel to market prices and concurrently, dishing out cash aid to those that Pangkalan Data Utama (PADU) has identified as target groups. A "fuel float" move would help reduce the fiscal deficit but put upward pressure on inflation," the report wrote.

NST reported that social assistance and subsidies in Malaysia nearly tripled from RM23 billion in 2010 to an estimated RM64 billion last year, with a peak of RM67 billion in 2022. The Auditor-General's Report 2022 states that Putrajaya spent RM55 billion on subsidies in 2022, with petroleum products primarily RON 95 gasoline and diesel making up the majority of this amount, or 82%.

According to HLIB, Malaysia has the highest per capita gasoline consumption and transport emissions in ASEAN (apart from Brunei) as a result of artificially lowering fuel prices through subsidies.

It pointed out that the current fuel subsidy structure is failing to achieve its goals, with only 24% of the B40 income group receiving the subsidised RON 95 petrol, while the T20 income group continues to enjoy this benefit.

HLIB also noted that imposing a price ceiling on fuels below their actual market value exacerbates the issue of fuel smuggling, which is especially common with diesel and results in the loss of subsidy money.