KUALA LUMPUR: Malaysia’s fiscal deficit is projected at 3.6% in 2026, with the latest targeted fuel subsidy adjustments supporting ongoing fiscal consolidation efforts, according to TA Securities.
The research house said the government’s move to reduce the subsidised RON95 quota to 200 litres per month — from 300 litres previously — is expected to generate fiscal savings while limiting broader economic disruption.
The policy, effective April 1, forms part of a broader recalibration of energy subsidies as authorities respond to elevated global oil prices and rising subsidy burdens.
Retail prices for unsubsidised fuels have increased significantly, with diesel in Peninsular Malaysia rising by 80 sen to RM5.52 per litre, RON97 up 60 sen to RM5.15, and unsubsidised RON95 also climbing 60 sen to RM3.87 for the period from March 26 to April 1, 2026.
TA Securities estimates the adjustment could yield gross fiscal savings of about RM5bil annually. However, it noted that the actual savings may be lower due to behavioural changes such as reduced fuel consumption.
In terms of impact on GDP, the research house said the effect is likely to be minimal for now.
“We await Bank Negara’s updated projection on March 31, but our current 2026 GDP forecast remains at 4.3%–4.7%,” TA Securities said.
It said that although higher fuel costs may pressure household disposable income and discretionary spending, the targeted design of the policy helps prevent a widespread erosion of purchasing power.
Private consumption, which accounts for roughly 60% of GDP, may see a mild moderation, particularly among middle- to higher-income households and urban commuters more likely to exceed the quota.
TA Securities said that, based on a demand-driven approach, the additional fuel costs borne by consumers are estimated at between RM5bil and RM8bil annually, after accounting for the affected share of total fuel consumption and partial pass-through to businesses.
On inflation, TA Securities said the impact remains manageable in the near term, as the policy focuses on quantity adjustments rather than outright price hikes.
However, risks are tilted to the upside amid volatile global energy markets.
“Our estimates suggest that every US$10 increase in global oil prices could add around 0.3 percentage points to Malaysia’s
consumer price index (CPI),” TA Securities said.
Under its base-case assumption of Brent crude averaging between US$80 and US$90 per barrel, inflation is projected at 2.1% to 2.3% in 2026.
In a higher oil price scenario of US$100 to US$150 per barrel, inflation could exceed 2.5% and rise as high as 3.9%.
TA Securities noted that global oil prices have surged amid geopolitical tensions, briefly breaching US$120 per barrel before moderating to around US$98, increasing pressure on subsidy spending.
The government’s subsidy bill is estimated at RM3bil per month when Brent averages US$90 per barrel, and could rise to about RM4bil at US$100 per barrel, underscoring the urgency of rationalisation measures.
Overall, the research house described the reforms as a measured approach that balances fiscal discipline with manageable economic trade-offs, while preserving support for key income-generating sectors through targeted exemptions.
