Malaysia’s Subsidy Revamp Sees Diesel Prices Spike over 56%

As predicted by industry experts worldwide, Malaysia's move to revamp gasoline and diesel subsidies, which was implemented on Sunday, has led to a 56% overnight increase in the price of diesel in the country.

Announced on Sunday, the revamp of the subsidies eliminates energy subsidies and redirects subsidies to the poorest parts of the population as the government of Prime Minister Anwar Ibrahim strives to build a more sustainable economy. 

Malaysia's subsidies have been plagued by fraudulent schemes, including the smuggling of cheap, subsidized fuel out of the country. While the Malaysian prime minister is treading cautiously in order to avoid riots, local media reports suggested that more subsidy revamps may follow in the near future, including for subsidies on cooking oil and rice. 

The decision to slash fuel subsidies was initially announced last month, but was then delayed in an effort to give lower-income consumers more time to adjust.

"All prime ministers before this had agreed on the targeted subsidy, but there was no political will to implement it because of the risks involved. However, to save the country, we have no choice," Anwar told Malaysia's Bernama news agency on Monday. 

The huge hike in prices overnight came as no surprise, with Malaysia's deputy finance minister on Sunday warning that prices would jump 56%, and would be reviewed on a weekly basis. 

Experts interviewed by Malaysian media praised the government's move, suggesting that the removal of the diesel subsidy was a clear indication that the country is approaching real economic reform in a serious manner.

By Charles Kennedy for Oilprice.com

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