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Drivers fume as Malaysia axes diesel subsidies, sending prices soaring

Malaysian civil servant Hanif Abdul Razak told This Week in Asia he was looking to part with his seven-seater SUV as he could no longer justify the running costs.

“I’m not ‘uber rich’,” he said. “It’s a sensible purchase considering comfort and safety for my family of six.”

Announcing the subsidy cut on May 22, Prime Minister Anwar Ibrahim said it targeted the “uber rich and foreigners” who he claimed were unjustly benefiting from diesel subsidised by Malaysian taxpayers.
Malaysian ringgit banknotes. The government has offered a 200-ringgit monthly handout to some Malaysian to cushion the impact of the subsidy cut. Photo: Bloomberg

To cushion the impact, the government has offered a 200-ringgit (U$43) monthly handout to some 30,000 eligible Malaysians. But the small print – requiring vehicles to be 10 years or older and worth under 100,000 ringgit (US$21,300) – excluded many middle-income drivers.

In a post widely shared on Facebook, property investor Ihsan Zainal highlighted his ineligibility for the handout, despite an expected rise in his monthly fuel bill from 1,653 ringgit to 2,576 ringgit for 769 litres of diesel.

“Even if eligible, it’s just 200 ringgit,” he said. “The difference is almost 1,000 ringgit. To whom do I claim? My clients?”

Beyond saving the government hundreds of millions of US dollars annually, ending the blanket fuel subsidy is also expected to curtail the appeal of smuggling subsidised Malaysian diesel into neighbouring Thailand, where fuel costs more.

“Malaysia cannot afford to continue losing billions of ringgit due to widespread diesel smuggling and misappropriation, when that money is better spent on improving the quality of life of the people and developing the country,” Second Finance Minister Amir Hamzah Azizan said on Sunday. Diesel will be sold at market prices that will be set weekly in Peninsular Malaysia while retail diesel prices will remain subsidised in the states of Sabah and Sarawak, he said.

A filling station in Kuching, Sarawak. Retail diesel prices will remain subsidised in the states of Sarawak and neighbouring Sabah. Photo: Bloomberg

An opposition Pas party politician warned that the subsidy cut would drive inflationary pressure on goods and services.

“Although the agricultural and logistics sectors are given protection under [the subsidy], enforcement remains important to control prices and [prevent] profiteering,” Pas politician Shahir Sulaiman said.

In March, research by Hong Leong Investment Bank found that freely floating the retail prices of both petrol and diesel could save the government 29 billion ringgit (US$6.2 billion), but at the cost of a 64 per cent increase in fuel costs to the public.

Prime Minister Anwar has said he is aware of the punitive risks on Malaysians if he slashes subsidies further.

“I concede that things need to be done, but it needs to be done judiciously,” he said at the Qatar Economic Forum in May. “Because in no way will I punish the masses.”

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