Market price for RON 95, diesel expected next year as targeted subsidy starts – ready to pay RM4 per litre? Leave a comment

Malaysian motorists will be paying market price for RON 95 petrol and diesel soon, as there’s a high possibility that targeted subsidies will be implemented next year. This is the view of Maybank Investment Bank, reported by BH.

“We expect higher prices for RON 95 petrol and diesel next year with the revision of fuel subsidy. We understand that the test for the targeted subsidy mechanism started last month and will go on for three to six months. Therefore, we predict that fuel subsidy will be revised again next year as part of the Budget 2023 agenda, which is scheduled for October 7,” Maybank IB said in a research note.

The need for Malaysian to move away from blanket fuel subsidy is clear. The T20 group, which is the top 20% of earners in the country, is enjoying some RM8 billion in fuel subsidies compared to the RM6 billion enjoyed by the bottom 40% (B40). This was revealed by finance minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz in July.

He was repeating what he said in May, that Malaysia’s rich are enjoying the lion’s share of government subsidies. “For every RM1 of fuel subsidy, 53 cents go to the T20, while 15 cents benefit the B40. So, for example if the subsidy bill this year is expected to top RM30 billion, over RM15 billion is subsidy to the T20,” the senator said then.

Why so? The affluent have more cars, their cars consume more fuel and have larger fuel tanks. It’s as simple as that. While the need for targeted subsidy is clear, it’s much harder to find good way to implement a system that will that benefit the intended recipients with minimal leakage, and is universal.

In July, Tengku Zafrul, in a written parliamentary reply, said that a mechanism for targeted subsidy is being tested. “The (initial) testing will be followed by more extensive testing,” he said, adding that the government wants to ensure the feasibility of the mechanism in both urban and rural areas.

“It (testing) is expected to take between three and six months before the new system is implemented nationwide,” he said, adding that the implementation of the targeted fuel subsidy mechanism will be implemented in stages to ensure it does not cause inflation or affect economic growth. Will the government use direct cash handouts via e-wallets?

We’ll have to wait for more details, which might be announced during Budget 2023 next month. By the way, Indonesia is also grappling with the dilemma of fuel subsidies. Having already tripled its original 2022 energy subsidy allocation, the republic is considering raising fuel prices – which are already higher than ours – by 30%.

Are you ready to pay market price for fuel? RON 97 is currently priced at RM4.30 per litre.