PETALING JAYA: The transition from RM700mil to RM3.2bil in monthly fuel support provides a critical buffer against global volatility, but economists say the move is sustainable only if it serves as a bridge to comprehensive, long-term structural pivots.
They said the sharp rise in expenditure is designed to maintain the RM1.99 ceiling for RON95 and subsidised diesel amidst volatile global crude oil prices.
While the measure protects consumers from price surges, Professor Emeritus Dr Barjoyai Bardai argued that long-term fiscal health depends on diversifying energy sources and fixing systemic productivity gaps.
He emphasised that the subsidy spike is a reactive necessity rather than a policy choice.
“This does not mean we are increasing subsidies; it is a budget that accounts for rising crude oil prices.
“If the government wants to maintain the RM1.99 ceiling, it has no choice but to provide this additional allocation,” he said when contacted yesterday.
However, he cautioned that the projected RM4bil saved from recent diesel reforms is only a temporary cushion.
“Short-term initiatives are fine, but mid- and long-term steps are essential.
“We must reduce fossil fuel reliance by intensifying solar and hydrogen energy, and exploring electric vehicles (EVs),” he said.
Barjoyai also said that as a net importer needing an extra 20 million tonnes of oil stocks, Malaysia must identify new sources and funding.
He suggested that a 20% expected rise in Liquefied Natural Gas (LNG) prices could bolster Petronas’ profits, potentially leading to higher dividends to support the treasury.
Sunway University economics professor Dr Yeah Kim Leng said a RM3.2bil monthly increase in subsidies for RON95 and diesel over the next nine months is estimated to increase the country’s fiscal deficit by 1.5% points from the targeted 3.5% of GDP to around 5% this year.
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“Since much of the deficit financing is likely through borrowings, the country’s debt will rise by an equivalent amount.
“This is deemed to be a significant deterioration of the country’s fiscal position, more so, considering that the spending is on fuel consumption rather than on productive purposes such as infrastructures, healthcare and education,” said Yeah.
“While it will keep a lid on inflation, a more prudent, sustainable approach, is to share the fuel subsidy burden with households and businesses especially if the world oil price level stays high for longer,” Yeah added.
At the same time, Yeah explained that Malaysia is a net energy exporter and the higher petroleum and gas export earnings provide a buffer against a sharp oil supply as well as a price shock.
“Asean peers like Thailand, Phillipines, and Indonesia are more dependent on oil imports than Malaysia, increasing significantly their exposure to world oil supply shocks,” said Yeah.
Centre for Market Education chief executive officer Dr Carmelo Ferlito was of the opinion that the subsidy surge exposes the vulnerability of public finances when price controls meet external volatility.
“Subsidies create the illusion of stability while accumulating hidden costs,” Ferlito said.
He explained that when subsidies become structural, they transfer the burden directly to the fiscal system, resulting in higher pressure elsewhere.
“There are no free meals; someone is always paying for the benefit enjoyed by someone else.”
On food security, he argued that while stockpiling is a precautionary measure, it should remain an emergency tool rather than a substitute for domestic competitiveness.
“Food security has two fundamental pillars – innovation and productivity growth, and free trade,” he added, warning that administrative stock management can become inefficient without broader agricultural reforms.
Williams Business Consultancy Sdn Bhd founder Geoffrey Williams highlighted the sheer scale of the fiscal burden.
He said while the subsidy cost per litre rose by 88%, the total monthly bill has ballooned by 360%.
“The new estimates suggest that all of the savings from the Budi95 rationalisation reforms will be wiped out,” Williams warned.
Since these costs are not in the current budget, he said the government would need to reallocate funds or cut spending if the trend persists.
Despite the fiscal pressure, Williams assured the public that fuel and food supplies remain secure, at least until June.
“There is no need for panic buying,” he said, adding that while Malaysia faces fewer supply issues than its Asean neighbours, its unique challenge lies in balancing the heavy burden of subsidies against fiscal sustainability.
