Business | Oil & Gas
Malaysia will raise fuel prices by 40% to reduce subsidy bill
Government also plans yearly cash rebate of $201 to car owners.
- AP
- Published: 00:08 June 5, 2008
Putrajaya, Malaysia: Malaysia said on Wednesday it will raise gasoline prices by 40 per cent to reduce the government's massive subsidy bill, a move that is expected to lift the inflation rate to five per cent.
The pump price of gasoline will rise today to 2.70 ringgit ($0.87) a litre, or 10.23 ringgit ($3.30) a gallon, from 1.92 ringgit ($0.61) a litre now, Prime Minister Abdullah Ahmad Badawi told reporters.
"We cannot naturally keep subsidising at the current rate," Abdullah said.
He said the government will also give a yearly cash rebate of 625 ringgit ($201) to owners of cars with an engine capacity of 2,000 cc or less to offset their burden from the massive hike. The money will be distributed to owners through post offices.
Subsidies have kept the price of fuel in Malaysia - a net exporter of oil - among the lowest in Southeast Asia. But the government says it can no longer afford to fund the subsidies, which are expected to cost the treasury more than 45 billion ringgit ($14 billion) this year.
Abdullah said diesel prices will rise by one ringgit to 2.50 ringgit ($0.80) per litre, a 67 per cent increase.
Domestic Trade and Consumer Affairs Minister Shahrir Abdul Samad earlier indicated that further price increases were planned to bring fuel prices in line with global market cost.
"The long term plan is to increase it to market price," he said, suggesting gasoline prices could rise to three ringgit ($1) a litre by August.
He said the move will save the government four billion ringgit ($1.29 billion) a year. Shahrir said the hike in gasoline prices will likely increase the inflation to five per cent.
Inflation hit a 15-month high of three per cent in April, and was forecast at 2.5 per cent to 3 per cent for the full year before the new fuel prices were announced.
Fuel prices in Malaysia had been unchanged since February 2006, and econ-omists have warned any move to abandon fuel subsidies completely may spark protests, push inflation sharply higher and weaken consumer spending - a bane to an already slowing economy.
The central bank has cut its 2008 economic growth forecast to five per cent to six per cent, from 6 per cent to 6.5 per cent previously. But the government does not expect any protest or public anger, Shahrir said. "We are still giving a subsidy" to less wealthy people, he said. Still economists were not convinced.
"This is quite a drastic measure," said Gundi Cahyadi, an economist with Singapore-based economic think-tank IDEAglobal.
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