RON95 reforms will be litmus test of govt's seriousness, says economist

PETALING JAYA: The implementation of rationalised diesel subsidies signals reform seriousness by the Malaysian government and sets the stage for RON95 petrol reforms, says an economist.

Apurva Sanghi, who is the World Bank lead economist for Malaysia, said the success of RON95 reforms depends on several factors - timing, how price increases are handled and how it is communicated to the middle class.

“Diesel reforms come on top of other recent reforms such as electricity subsidies for large-scale users and water tariff reforms.

“It sets the stage for addressing the elephant in the room - RON95 subsidies, but what will help it stick?” he said in a series of posts on X (formerly known as Twitter) on Friday (May 24).

He said RON95 reforms can lead to one-time increases in price levels, pointing out how it could rise between 5% to 9%, depending on global energy prices.

“Timing becomes more important. Introduce RON95 reforms when energy prices are relatively low,” he said.

RON95 reforms, he said, stand to reshape the social contract.

Apurva added that it is the middle class who will be most hurt by the move.

“Using some subsidy savings to help them and/or other complementary reforms will secure their buy-in and ensure overall success,” he said.

“Overall, Malaysia is getting serious about subsidy reform and RON95 is now the litmus-test,” he said.

On Tuesday (May 21), Prime Minister Datuk Seri Anwar Ibrahim announced that diesel subsidies would be rationalised for the peninsula, a move that could potentially save the government around RM4bil annually.

To prevent any drastic increase in the cost of goods and services, he said subsidies will also be given to traders using diesel vehicles.