Government’s Diesel Subsidy Rationalisation Expected to Boost GDP and Savings

Experts foresee a notable impact on Malaysia’s Gross Domestic Product (GDP) and substantial savings following the recent adjustment of diesel subsidies by the government, setting the pump price at RM3.35 per litre.

According to NST, Prof Emeritus Dr. Barjoyai Bardai of Malaysia University of Science and Technology (MUST) pointed out a significant surge in Malaysia’s diesel consumption, reaching 10.8 billion litres last year from 6.2 billion litres previously.

He emphasised that despite the new price, Malaysia’s diesel remains competitively priced compared to neighbouring countries like Thailand, Indonesia, and Singapore. Dr. Barjoyai also highlighted the government’s Budi Madani assistance initiative, aimed at easing the burden on individuals, particularly private diesel vehicle users.

Dr. Barjoyai expressed confidence in the government’s subsidy initiative for those in need, expecting it to help regulate commodity prices, although he stressed the importance of active price monitoring.

On the other hand, Dr. Mohd Afzanizam Abdul Rashid, Chief Economist of Bank Muamalat Malaysia Bhd, suggested that the initiative could mitigate the impact on commodity prices. He also highlighted government aid programs such as Sumbangan Asas Rahmah (SARA) and Sumbangan Tunai Rahmah (STR), designed to alleviate financial burdens on the public.

Dr. Mohd Afzanizam also believed that the adjusted diesel price could deter fuel smuggling to neighbouring countries.

“With diesel priced at RM3.35, it aligns with market rates. Previously, at RM2.15, there was significant profit for smugglers. With this adjustment, smuggling activities may decline as profits become less lucrative,” he explained.

Finance Minister II Datuk Seri Amir Hamzah Azizan announced earlier that the retail price of diesel across Peninsular Malaysia would be set at RM3.35 per litre, effective from 12:01 am on June 10, based on the Automatic Pricing Mechanism formula.

He stated that the targeted pricing and subsidy implementation would save the country RM4 billion annually, bolstering its financial position in the long term. Amir Hamzah added that diesel prices would be updated weekly by the Finance Ministry, with continuous monitoring to maintain price stability.

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