Malaysia Maintains Fuel Subsidy Program Despite World Bank Proposal

Government Rejects Global Financial Institution's Price Hike Recommendation

Malaysia's government has firmly rejected the World Bank's recent proposal to increase fuel prices, choosing instead to continue its targeted subsidy program for RON 95 petrol. The decision was announced by Prime Minister Datuk Seri Anwar Ibrahim, who also serves as Finance Minister, emphasizing the effectiveness of the current subsidy mechanism in balancing national budget management and citizen welfare.

Key Elements of Malaysia's Fuel Subsidy Policy

The BUDI MADANI RON 95 (BUDI95) program, which is the centerpiece of Malaysia's fuel subsidy strategy, has been maintained despite external pressure to adjust prices to market levels. Anwar Ibrahim highlighted that the targeted subsidy approach has been successful in reducing national expenditure while ensuring that the majority of citizens continue to receive support. The program differentiates between citizens and non-citizens, with RON 95 priced at RM 1.99 per liter (approximately Rp 8,059) for Malaysians and RM 2.60 per liter (Rp 10,530) for foreigners.

World Bank's Alternative Proposal

The World Bank had recommended that Malaysia eliminate fuel subsidies by raising prices to RM 2.65 per liter (approximately Rp 10,732) and instead provide targeted assistance directly to qualifying citizens. However, the Malaysian government found this proposal unappealing, opting to maintain control over fuel pricing while continuing its existing subsidy framework. Anwar Ibrahim explained that the government's approach has received positive feedback from the public and has been effective in minimizing subsidy leakage to non-citizens and commercial activities.

Implications for Malaysia's Economic Management

The decision to maintain the current fuel subsidy structure reflects Malaysia's cautious approach to economic management, particularly in sensitive areas such as fuel pricing. By preserving the subsidy program, the government aims to maintain public support while managing its fiscal responsibilities. This move demonstrates the government's commitment to protecting consumer welfare while navigating complex economic pressures from global institutions.