With subsidy rationalisation for diesel done and deemed a success by the government, the question on everyone’s lips is when is the turn of RON 95 petrol? That’s the big one that will affect most of us, and so far, the government has been tight-lipped on the timeline. Expect a last minute announcement, as per diesel.

They might not have the luxury of time though. Citigroup’s chief Malaysian economist Wei Zheng Kit said this week that Malaysia’s fiscal spending in the first five months of 2024 reached 53.9% of the full-year target, surpassing the year-to-date spending levels of previous years. And to meet the country’s deficit target, things need to be done.

As such, fuel subsidy rationalisation for RON 95 petrol might happen as soon as this month, he told Bloomberg.

According to the business publication, Malaysia’s budget deficit was 5% of GDP last year and prime minister Datuk Seri Anwar Ibrahim aims to bring the figure down to 4.3% by removing blanket subsidies, in a bid to attract more investments into the country.

Last year, Malaysia’s allocation for subsidies was around RM81 billion, and the bulk of it went to fuel subsidy to keep RON 95 at RM2.05 per litre and diesel at RM2.15 per litre. It is said that subsidy rationalisation for diesel could save the government RM4 billion per annum.

Citi estimates that the government can save an additional RM3 billion to RM4 billion this year if a 30 sen per litre increase for RON 95 is implemented this month, taking the pump price to RM2.35 per litre. This assumes a gradual increase to market price, and not a big overnight jump.

However, that’s merely the economic side of things, and there’s always a political side as well. Some analysts believe the RON 95 subsidy cuts may only be carried out towards the end of 2024. Anwar has said that the government’s current focus is to ensure the smooth implementation of diesel subsidy following a 56% price hike last month that courted public backlash.

It’s never easy to remove subsidies, and the PM has admitted so. “Targeted subsidies are hard to implement. If you ask me, we should have done it for RON 95 a long time ago, but it’s not easy,” he was quoted as saying.

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