No more fuel subsidies for Malaysians

In a surprise move, the Malaysian government announced on Friday that it will finally end the decades-long fuel subsidy for RON95 petrol and diesel effective 1 December 2014 onwards. The government had earlier proposed a multi-tiered system that would allocate subsidy according the purchaser’s income level, so this latest move was as unexpected as it was sudden.

Following in the footsteps of India, which took advantage of the fall in global crude prices to begin axing diesel subsidy, Malaysians too should be able to enjoy the benefits that follow the steep drop in global crude prices, the lowest in four years. The pump prices will be determined based on a “managed float” system, the same used to dictate RON97 petrol prices since 2010 – the average fuel price for the first 19 days of the month will be monitored; if there is a significant change, the average price of the remaining days in the month will determine the pump price in the following month.

The average market price from 1 to 19 November was RM2.27 (US$0.68) a litre, lower than the present pump price, which is RM2.30 (US$0.69) a litre.

Economists believe that there is no better time than now and that it will bring positive impact on the country’s economy. “Subsidy is a major price distortion in the economy, so it’s a big thumbs-up,” said Wan Suhaimi Saidie of Kenanga Investment Bank.


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