(Bloomberg) — Malaysia’s government is bracing for a public backlash as it commits to rolling back petrol subsidies in mid-2025, a politically sensitive and long-delayed pledge that’s key to convincing investors it’s serious about fiscal reform.
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The government is mulling a two-tier price system for the country’s most-widely used fuel, so that the wealthiest 15% pay the market rate for RON95 petrol while the rest enjoy the current subsidized price, Economy Minister Rafizi Ramli said on Saturday. That’s expected to save the government 8 billion ringgit ($1.9 billion) a year — though it could also trigger second-round price hikes and lead to a surge in inflation, he said.
“We are prepared for the choppy waters ahead,” Rafizi said in an interview on Bloomberg Television’s “Insight with Haslinda Amin,” to be broadcast at 11 a.m. Hong Kong time on Monday. While the government has spent time readying the masses and explaining their reasoning for the subsidy reforms, “it’s a once-in-a-generation decision that affects everyone’s lives.”
It’s a plan years in the making, and how Malaysia navigates it will be crucial for Prime Minister Anwar Ibrahim as he looks to lift investor confidence while avoiding the fate of his three direct predecessors, each of whom lasted less than two years in office. Anwar needs to balance the interests of various political parties that make up his coalition government.
Rolling back diesel subsidies in June was followed by the ruling coalition’s loss in a by-election. While it rebounded in two subsequent polls, the stakes are higher with RON95 — Malaysians are so reliant on private transportation that vehicles outnumber the population.
“My hope, and our responsibility in the government, is to make sure that we manage this properly so that it is sustainable,” Rafizi said, a day after Anwar unveiled a record spending plan to boost the economy.
Inflation is the government’s biggest concern, according to Rafizi, even though only a fraction of the population will be subjected to higher RON95 prices.
“It is the nature of the Malaysian economy that, at any sign of a fuel price hike, you will start seeing everything else go up,” said the 47-year-old, who is a qualified chartered accountant. “Our simulation is that if there is a price hike, we have to go through at least a 12-month cycle before the inflation basically stabilizes again to around 2%.”
The government expects the…
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