300-litre Budi95 allocation could delay subsidy reforms, economist warns
PETALING JAYA: The government’s decision to restore the monthly Budi95 fuel subsidy eligibility to 300 litres may provide welcome relief to motorists, but it could also make Malaysia’s long-term subsidy rationalisation more difficult, an economist has said.
Centre for Market Education CEO and economist Dr Carmelo Ferlito said the move is understandable given persistent cost-of-living pressures, but maintaining subsidised fuel prices could prolong distortions in the economy.
“From the perspective of subsidy rationalisation, I would regard this as a step backwards, although I understand the political and social rationale for providing some temporary relief.”
He said fuel prices play an important role in signalling scarcity and influencing how consumers and producers allocate resources.
“When the government artificially suppresses a price, economic decisions begin to develop around a false signal.”
Ferlito said the longer such distortions remain, the more difficult and painful any eventual adjustment could become. He emphasised that subsidies do not remove the underlying cost of fuel but instead shift part of the burden from consumers to government finances.
“A subsidy does not eliminate the higher cost of petrol, it merely transfers part of that cost from the consumer at the pump to the government budget.”
He said this means the fiscal implications of fuel subsidies should be considered alongside their immediate benefit to consumers.
Ferlito also said Malaysia should move towards market-determined fuel prices, while ensuring vulnerable households continue to receive support.
“The desirable direction remains progressively moving towards market-determined fuel prices (which means, to be clear, total abolition of subsidies).”
However, he said any transition should be accompanied by more targeted assistance, such as cash transfers or vouchers based on genuine household needs, rather than keeping prices artificially low for broad groups of consumers.
“This preserves the information contained in prices while still allowing a social safety net.”
Prime Minister Datuk Seri Anwar Ibrahim announced on Sunday that the basic eligibility for Budi95 would be restored from 200 litres to 300 litres a month, allowing more than 16 million users to benefit from subsidised RON95.
The move was among six immediate measures announced by Anwar to ease cost-of-living pressures, with the measures taking effect starting yesterday.
Ferlito said the challenge for the government would be ensuring the temporary relief does not delay the broader reforms needed to make Malaysia’s subsidy system more targeted and fiscally sustainable.
The issue is also expected to feature in the broader economic direction outlined in Budget 2027, with Anwar having indicated that further measures would be announced in the coming weeks.
