Kuala lumpur: The rationalisation of RON95 subsidies marks a landmark in Malaysia’s structural reform journey, with the reduction in subsidy expenditure expected to help narrow the fiscal deficit and improve the government’s debt dynamics, said an economist.
According to BERNAMA News Agency, IPPFA Sdn Bhd director and country economist Mohd Sedek Jantan stated that the targeted RON95 subsidies under the BUDI MADANI RON95 (BUDI95) programme could strengthen fiscal consolidation while ensuring benefits are directed to the most deserving groups. He mentioned that the initiative could also contribute indirectly to strengthening the current account balance by reducing reliance on imported fuel.
Earlier today, Prime Minister Datuk Seri Anwar Ibrahim announced that the price of RON95 will be reduced to RM1.99 per litre from RM2.05 per litre through targeted subsidies under the BUDI95 programme, effective September 30, 2025. The Ministry of Finance (MoF) estimates that targeted subsidies could generate annual fiscal savings of around RM8 billion, compared with nearly RM20 billion previously spent on RON95.
Commenting on the savings, Mohd Sedek highlighted that they represent more than just a fiscal windfall. He noted that, if reinvested prudently, these savings could deliver a multiplier effect by crowding in private investment through infrastructure, digitalisation, and social spending.
On the sovereign front, Mohd Sedek explained that the consolidation could improve Malaysia’s fiscal headroom, reduce the need for deficit financing, and send a positive signal to credit rating agencies. He emphasized that stronger fiscal discipline enhances Malaysia’s sovereign credit profile, lowers risk premia, and supports macroeconomic stability. Furthermore, by curbing structural subsidies, the government indirectly strengthens its external position, as reduced fiscal leakage improves the current account balance and investor confidence in Malaysia’s long-term debt sustainability.
Ultimately, Mohd Sedek added that this initiative, if executed with discipline and openness, can deliver both fiscal efficiency and social equity, which are hallmarks of a resilient, investment-friendly economy. Echoing Mohd Sedek’s views, Putra Business School Associate Professor Dr Ahmed Razman Abdul Latiff commented that the government will achieve savings as non-citizens and large companies are charged the market price for RON95. He noted that the savings, estimated by the MoF at around RM8 billion annually, will support fiscal consolidation and can be redirected to initiatives aimed at assisting targeted groups.
Malaysia is targeting a reduction in its fiscal deficit to 3.8 per cent of gross domestic product (GDP) in 2025 and further to about 3.4 per cent in 2026, from 4.1 per cent in 2024, and aims to lower the debt-to-GDP ratio to below 60 per cent in the medium term, from 64.6 per cent in 2024.
Asked about potential inflationary pressures following implementation, Mohd Sedek mentioned that they are expected to be modest, as household savings are likely to be channelled into discretionary goods and leisure, supporting domestic demand without undermining the affordability of staples. He explained that targeting RON 95 subsidies avoids significant cost-push inflation while rebalancing consumption patterns in a way that sustains growth momentum.
Meanwhile, Ahmed Razman concurred that logistics companies could face some inflationary effects, as the RON95 price will rise by more than 20 per cent if they exceed the 300-litre monthly limit. However, he said that with continuous enforcement by the Ministry of Domestic Trade and Cost of Living, companies will not be able to charge exorbitant prices for products or services to exploit the situation.
Under BUDI95, all Malaysians are eligible for a subsidised monthly ceiling of up to 300 litres of RON95 petrol, while e-hailing drivers are exempted from this limit and may apply for additional allocations to ensure their livelihoods are not affected.