Malaysia's Prime Minister, Datuk Seri Anwar Ibrahim, is currently navigating the complexities of subsidy rationalisation as discussions on targeted subsidies for RON95 petrol are described as 'actively' ongoing. PMO senior director Nurhisham Hussein confirmed that no final decision has yet been made regarding the implementation parameters of these subsidies. This comes in the wake of the government's recent decision to replace blanket diesel subsidies with a targeted system, which has been accepted and has reportedly curbed diesel smuggling [5395d115].
The targeted diesel subsidy initiative is part of Anwar's broader strategy to transition to a more efficient subsidy regime that aims to alleviate financial pressures on the most vulnerable populations. The government is keen to achieve its fiscal deficit targets without compromising essential expenditures, as inflation remains stable since the implementation of these targeted subsidies [5395d115].
Despite these efforts, the removal of broad diesel subsidies has led to significant public backlash, with many Malaysians expressing dissatisfaction over rising costs of living. Diesel prices spiked by around 50% overnight on June 10, which has resulted in increased rates for domestic tour bus operators and warnings from businesses about passing rising costs onto consumers [770f1630].
In addition to the subsidy discussions, the Malaysian ringgit has shown signs of strength, currently trading at RM4.3770 against the US dollar, its highest since February 2023. Analysts, including Dr. Runchana Pongsaparn from AMRO, have highlighted positive factors supporting the ringgit, such as government efforts and increased foreign investment. Expectations of a potential 50 basis point reduction in US interest rates by the Federal Reserve may further bolster the currency [5395d115].
As the government continues to navigate these economic challenges, the removal of diesel subsidies has raised concerns about inflation across various sectors, including food and transportation. Small- and micro-sized businesses that rely on diesel-powered vehicles are particularly affected, leading to increased operational costs [494dae01]. The government claims that the savings from the subsidy cuts will be redirected to support poor families through various forms of social assistance, but many Malaysians are still feeling the pinch of rising prices [770f1630].