Diesel subsidy rationalisation promises economic growth and savings - Experts

KUALA LUMPUR - The government's diesel subsidy rationalisation, with the pump price of the fuel set at RM3.35 per litre today, is expected to significantly boost Malaysia's Gross Domestic Product (GDP) and generate substantial savings, according to experts.

Prof Emeritus Dr Barjoyai Bardai of the Malaysia University of Science and Technology (MUST) noted that Malaysia's diesel consumption had increased to 10.8 billion litres last year from 6.2 billion litres the previous year.

"If diesel demand continues to rise, this will positively impact the economy because the selling price has increased to RM3.35 per litre, consequently boosting the GDP.

"With this new diesel price announcement, I see the government saving RM4 billion, which can be redirected towards infrastructure development and other purposes," the economist told Bernama.

Commenting on the new diesel price, Barjoyai said it was still lower than that of neighbouring countries like Thailand, Indonesia, and Singapore.

He added that the Budi Madani assistance initiative introduced by the government last month would help reduce the burden on people, especially those using private diesel vehicles.

"Members of the public using private diesel vehicles can also apply for subsidies through the Budi Madani initiative, where they will receive RM200 monthly. Applications are open with no closing date set as yet," he said.

Barjoyai also believed that the government's subsidy initiative for those in need could help keep the prices of goods under control, although proactive price monitoring was still crucial.

Meanwhile, Bank Muamalat Malaysia Bhd’s chief economist Dr Mohd Afzanizam Abdul Rashid also opined that the Budi Madani initiative could help mitigate the impact on the prices of goods.

Additionally, he said the government’s aid initiatives such as the Sumbangan Asas Rahmah (SARA) and Sumbangan Tunai Rahmah (STR) would help ease the public's burden.

"These measures should minimise the expected impact on the prices of goods since the new diesel pricing allows the government to save up to RM4 billion," he said.

He also believed that the new diesel price could curb the smuggling of fuel to neighbouring countries.

"With the diesel price adjusted to RM3.35, it aligns with the market price. Previously, at RM2.15, there was a significant profit margin for smugglers.

"With this new price, I believe smuggling activities may decrease as the profits are not as substantial," he said.

Earlier, Finance Minister II Datuk Seri Amir Hamzah Azizan announced that the retail price of diesel at all pumps in Peninsular Malaysia would be set at RM3.35 per litre, set at the market price based on the Automatic Pricing Mechanism formula, effective 12.01 am, June 10.

He said the targeted diesel pricing and subsidy implementation would save the country RM4 billion annually, while strengthening its financial position in the long term.

Amir Hamzah added that diesel prices would be announced weekly by the Ministry of Finance, and the government would continue to monitor the situation to prevent price instability. - BERNAMA