A diesel car owner pumps at a petrol station in Kuala Lumpur, Malaysia, Monday, June 10, 2024. Diesel price in Malaysia jumped by more than 50% on Monday as part of a revamp of decades-old fuel subsidies to tighten government spending and save billions of ringgits annually. (AP Photo/Vincent Thian)



Diesel prices in Malaysia surged by over 50% on Monday as part of a significant overhaul of longstanding fuel subsidies aimed at curbing government expenditure and saving billions of ringgits annually.

The restructuring involves phasing out general energy subsidies and redirecting them to benefit those in need, forming a key component of economic reforms spearheaded by Prime Minister Anwar Ibrahim. According to the government, these measures are essential for fostering a more sustainable economy and addressing losses incurred from the illicit trade of low-cost oil to neighboring nations.

However, this move poses a bold yet precarious challenge for Anwar, who assumed office in 2022. The decision, unpopular among many working-class voters grappling with escalating living costs, involves the reduction of fuel subsidies announced last month. This preemptive announcement aimed to afford lower-income segments ample time to adapt to the impending changes.

Anwar emphasized the necessity of this shift, noting that while previous administrations had contemplated targeted subsidies, they lacked the political resolve to implement them due to associated risks. He reiterated the imperative nature of these reforms for the nation's welfare, as quoted by the national Bernama news agency.

The government intends to extend these subsidy reforms to gasoline in due course. Subsidies on essential commodities like fuel, cooking oil, and rice have long strained Malaysia's finances.

Second Finance Minister Amir Hamzah Azizan disclosed on Sunday that diesel prices would escalate to 3.35 ringgit ($0.71) per liter on Monday, representing a 56% increase from the previous subsidized rate of 2.15 ringgit ($0.46). He outlined plans for regular price reviews to align with market fluctuations.

Exceptions to this price hike include Malaysian states on Borneo island and designated logistic vehicles. Previous lower rates for fishermen and various land transport services such as school buses, taxis, and ambulances will remain unchanged.

Furthermore, eligible individuals with diesel vehicles, including farmers and commodity smallholders, will receive monthly cash assistance. Government officials assured that these adjustments would not significantly inflate prices, as subsidies would continue to benefit targeted groups.

Amidst these changes, Amir highlighted that Malaysia's diesel prices remained relatively low in Southeast Asia, second only to Brunei. This contrasts starkly with diesel prices in neighboring Singapore and other regional countries, which are substantially higher.

Amir emphasized that targeted subsidies would contribute to reducing the fiscal deficit, anticipating annual savings of at least four billion ringgit ($850 million). He underscored the urgency of addressing the issue of widespread diesel smuggling, asserting that redirecting funds towards enhancing living standards and national development would yield greater benefits for Malaysia.

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