Economists see the reduction in the BUDI MADANI RON95 quota as a necessary but imperfect step to curb subsidy spending amid volatile global oil prices
KUALA LUMPUR: The government’s move to adjust the monthly quota for subsidised BUDI MADANI RON95 (BUDI95) petrol to 200 litres from 300 litres is a much-needed temporary measure to reduce subsidy spending amid the spike in oil prices brought on by the conflict in West Asia, said an economist.
The move comes into effect on April 1, 2026.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said the quota adjustment is a step in the right direction, although it might not be the most effective solution in the long term to counter rising subsidy payouts.
He said the government’s action was nevertheless vital as rising subsidy costs, potentially reaching RM24 billion this year, represent a growing fiscal risk.
“Delaying action (to cut subsidies) only increases the eventual cost. Acting early allows for gradual and controlled adjustments, while a postponement increases the likelihood of more abrupt and disruptive measures later,” he told Bernama.
From a fiscal perspective, he said the government’s decision to cut the quota amount will deliver more stable and predictable savings by reducing the subsidy per litre across total consumption, rather than relying on a smaller group of users exceeding the quota.
“In short, quota cuts manage usage at the margin, but price adjustment drives real behavioural change and fiscal sustainability,” he added.
Sedek said the reduction in RON95 subsidy quota will create a sharp price cliff, where consumers suddenly move from RM1.99 to RM3.87 once they exceed the limit.
He reckoned that this distorts behaviour and disproportionately affects those who slightly exceed the threshold, rather than encouraging a broad-based adjustment. Therefore, he suggested that a more effective approach would be to maintain the 300-litre quota but adjust the subsidised price to around RM2.30. Beyond that threshold, prices can remain at RM3.87.
“This spreads the adjustment across all users, provides a more consistent price signal, and encourages more prudent consumption across the board,” he said.
To balance the impact, Sedek said the government could strengthen targeted assistance such as Sumbangan Tunai Rahmah (STR) for lower-income households, noting that this would be a more economically efficient and fiscally sustainable approach. He added that support should shift from price-based subsidies to income-based assistance.
“Expanding targeted programmes such as STR is more effective in protecting vulnerable groups without distorting market prices.
This ensures that assistance reaches those who need it most, while allowing the government to gradually reduce broad-based subsidies and strengthen fiscal sustainability,” he said.
However, CGS International Securities Malaysia chief economist Nazmi Idrus said the government’s quota adjustment is less harmful than a broad-based hike in the RON95 price, considering it as the lesser of the two evils.
He said the move would ensure that the poor, who tend to use less fuel, are still protected from higher expenditure.
“The media reported that 90 per cent of consumers use less than 200 litres of fuel, so the majority is still protected. So far, the subsidy for the transport sector under the fleet card system and the Diesel Subsidy Control System (SKDS) remains intact, which means that businesses continue to receive some level of support,” he said.
Meanwhile, Sedek noted that the recent fuel price increase remains manageable for consumers, especially given the continued subsidy support. He said this has helped stabilise cost pressures and support household consumption.
“However, this stability is largely policy-driven rather than market-driven, which raises questions about sustainability if external conditions remain volatile,” he added.
