‘Government caught between maintaining public support and managing debt, as costs to subsidise have surged fourfold due to external price shocks’
PETALING JAYA: Malaysia’s fuel subsidy bill has reached unsustainable levels amid rising global oil prices, with economists cautioning that the current system places a heavy strain on national finances and must be reformed.
Putra Business School economist Assoc Prof Ida Md Yasin said the government is caught between sustaining public support and managing debt, as subsidy costs have surged fourfold due to external price shocks.
“The issue is not about reducing subsidies but the rising cost of maintaining them.” Ida said while government revenue remains largely unchanged, expenditure has risen sharply leading to deficits and borrowing.
“When income stays the same but spending rises, it leads to debt. The question is who pays later? Most likely the current or future generation.”
She added that Malaysia has been working to reduce its debt-to-GDP ratio after the Covid 19 pandemic, and warned that cutting fuel quotas is only a short-term fix.
She said Malaysia should gradually reduce subsidies and invest more in renewable energy in the long term while ensuring that vulnerable groups are supported through broader energy diversification.
Economist Prof Geoffrey Williams agreed that reducing the RON95 quota could lower costs, but argued that a tiered pricing system would be more effective.
He said lowering the monthly quota to 150 litres may not save much, as most consumers already use less than 100 litres.
“The RM7 billion monthly cost is unsustainable.”
Williams proposed a tiered model similar to electricity tariffs, where subsidies decrease as consumption rises.
He said, for example the first 100 litres should be fully subsidised, the next 50 litres at 50% subsidy, the following 50 litres at 25%, and no subsidy beyond 200 litres.
“This encourages economising, and affects the rich the most.” He cautioned that quotas below 100 litres could spark backlash, stressing that the most effective system must balance fiscal savings with minimal disruption.
Finance Deputy Minister Liew Chin Tong had earlier said the government’s top priority is to ensure that the country continues to have sufficient fuel supply for as long as possible.
“As a society, we must ensure that we have petrol supply for the longest of time, and at some point we should build consensus to support the effort to reduce fuel consumption,” he said.
