Removing the Gas Subsidy Crutch – Can Malaysia Do It?

With the next general elections due by April 2013, and in light of recent political uncertainties, one crucial subject is relatively missing from public discussion: gas subsidies.

Gas is heavily subsidized in Malaysia, to the tune of $14 billion in 2008. [1] That keeps fuel prices in Malaysia at about USD$0.60 per liter for RON95[2], the regular unleaded fuel, while the premium RON97 goes at USD$0.91 per liter[3]. Diesel is priced at USD$0.56 per liter.[3]

“We started the subsidies after the Asian financial crisis, and we should not have continued doing that. We should have weaned ourselves off it and gone back to market prices after the economy picked up again.” [4]

The Asian financial crisis in 1997 led to gas subsidization to help Malaysians cope with living costs and keep consumer goods prices down. Since then the subsidization cost continued rising.

As of 2012, reports indicate that Malaysia’s fuel prices are the 10th cheapest in the world and the second cheapest in Asia.[5] However, as gas prices worldwide kept rising since 1997, the subsidization burden on the government had also risen, and in 2010 fuel subsidization Read more…

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