Malaysia targets diesel subsidies: what you need to know

On May 21, 2024, Prime Minister Datuk Seri Anwar Ibrahim announced a major shift in Malaysia's fuel subsidy policy. The Cabinet agreed to implement targeted subsidies, starting with diesel in Peninsular Malaysia. This move aims to streamline government spending and ensure support reaches those who need it most.

Key Points of the Targeted Diesel Subsidy

• Focus on Efficiency: The current blanket diesel subsidy is deemed costly and inefficient. The targeted approach aims to reduce leakages and misuse of subsidies.
• Peninsular Malaysia First: The initial implementation is limited to Peninsular Malaysia. Sabah and Sarawak, where diesel is heavily relied upon for daily transportation, will be addressed in a separate plan.
• Protecting Vulnerable Groups: The government will provide subsidies for specific commercial vehicles crucial for the supply chain. This includes public transport and goods transport vehicles under the Subsidised Diesel Control System (SKDS).
• Cash Aid for Eligible Individuals: Cash assistance will be provided to specific groups, such as small farmers, fishermen, and small traders who depend on diesel-powered vehicles for their livelihood. The top 20% income earners and foreigners will not be eligible for this aid.
• Potential Cost Savings: The government estimates annual savings of RM4 billion with this targeted approach. These funds can then be redirected towards other social programs.

Impact and Implications

• Price Fluctuations: The targeted subsidy might lead to a price increase for non-subsidized diesel. However, the government aims to minimize this impact through measures like the SKDS program and cash aid.
• Long-Term Benefits: By streamlining subsidies, the government hopes to create a more sustainable fiscal policy and free up resources for targeted social programs.

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