KL cuts diesel subsidies, with hopes handouts will cushion inflation impact

Analysts say move could have adverse political ramifications for Anwar’s govt

- Azril Annuar

Malaysia will cut diesel subsidies and float retail prices to the market rate of RM3.35 per litre, an increase of about 55 per cent from RM2.15, starting from June 10.

The move, however, will not have much impact on the country’s inflation rate – although it may have adverse political ramifications for Prime Minister Anwar Ibrahim’s ruling Pakatan Harapan coalition, said experts.

Announcing the rationalisation on June 9, Minister of Finance II Amir Hamzah Azizan said: “Malaysia can ill afford to continue losing billions of ringgit to smuggling, which could otherwise be better spent to benefit Malaysians and develop our nation.”

The previous price for diesel, which was announced on June 5, was RM2.15 per litre.

On May 24, Datuk Seri Amir said diesel subsidies cost the country RM1 billion (S$288.2 million) a month, while losses from leakages amount to RM4.5 million a day.

In 2023, RM14.5 billion was spent on diesel subsidies. With the rationalisation, the government is expected to save around RM4 billion annually.

Senior economist Yeah Kim Leng told The Straits Times that he does not expect Malaysia’s inflation rate to increase, and even if it does, it will be a marginal increase on certain products instead of all goods and services.

He said Datuk Seri Anwar’s RM200 Budi Madani cash handouts for the lower-income group, as well as farmers and smallholders, can tide them over the price increase.