Categories: Business Newsoil and gas

Subsidy Rationalisation: RON95 Next on the Agenda? 🛢️

RON95 petrol subsidy reforms may start soon, saving RM4 billion annually, amid rising fiscal pressures and increased enforcement against misappropriation and smuggling

With the success of diesel subsidy rationalisation, the focus now shifts to RON95 petrol. The government has been tight-lipped about the timeline, but changes could be imminent.

Fiscal Pressures and the Need for Reforms

Malaysia’s fiscal spending has already reached 53.9% of its full-year target within the first five months of 2024. According to an economist who spoke to Bloomberg, to meet the country’s deficit target, further subsidy reforms are essential.

The diesel subsidy rationalisation has already been implemented successfully, and the focus might soon shift to RON95 petrol, potentially starting as early as this month.

Potential Savings from RON95 Subsidy Rationalisation

Last year, Malaysia’s budget deficit was 5% of GDP, and Prime Minister Datuk Seri Anwar Ibrahim aims to reduce this figure to 4.3% by cutting blanket subsidies. The allocation for subsidies was around RM81 billion, with a significant portion directed towards fuel subsidies. Rationalising the RON95 subsidy could save the government an additional RM3 billion to RM4 billion per year if a 30 sen per litre increase is implemented, raising the pump price to RM2.35 per litre.

Political Considerations

While the economic benefits are clear, the political implications are complex. Analysts suggest that subsidy cuts for RON95 may be delayed until the end of 2024 to avoid public backlash, similar to the response seen with the diesel subsidy hike. Prime Minister Anwar Ibrahim acknowledges the difficulty in implementing targeted subsidies, noting that such reforms should have been done earlier but are challenging to execute.

Increased Seizures of Misappropriated RON95 Petrol

Following the implementation of diesel subsidy targeting, there has been a notable increase in the seizure of misappropriated RON95 petrol. Within 20 days of the diesel subsidy targeting, 46 cases involving 14,011 liters of RON95 petrol were reported, compared to 37 cases involving 17,064 liters in the preceding 20 days. This increase highlights the need for continued vigilance and enforcement.

Successful Reduction in Diesel Subsidy Misappropriation

In contrast, the number of diesel subsidy misappropriation cases has significantly decreased. There were 65 cases involving 520,803 liters of diesel in the 20 days before subsidy targeting, compared to just 14 cases involving 68,457 liters afterward. This 87% decrease demonstrates the effectiveness of the subsidy rationalisation measures.

Enhanced Enforcement Measures

The Ministry of Domestic Trade and Cost of Living (KPDN) plans to intensify enforcement actions against the misappropriation and smuggling of controlled and subsidized goods, particularly diesel and RON95 petrol. Under Ops Tiris 3.0, KPDN will collaborate with other enforcement agencies to address leakage issues comprehensively and effectively.

The success of diesel subsidy rationalisation sets a positive precedent for potential RON95 petrol reforms. While economic pressures necessitate these changes, the government must navigate the political landscape carefully to avoid public discontent. Enhanced enforcement and monitoring will be crucial in ensuring the effectiveness of subsidy reforms and reducing misappropriation.