Malaysia brings back fuel subsidy to cushion consumers

Malaysia re-introduced fuel subsidy to follow through Prime Minister Mahathir Mohamad's pre-election pledge to keep a lid on retail prices of diesel and gasoline, and although the move will lift government expenditure, meeting this year's budget deficit target is not at risk, analysts said.

The federal government allotted three billion ringgit ($754.82 million) this year to fund the additional cost, the finance ministry said in a statement. This current week alone, the subsidy will cost 0.33 ringgit a liter for all retail purchases of RON95 grade gasoline and diesel, the ministry said.

Economists said any potential increase in subsidy costs from further rise in oil prices will be cushioned by higher petroleum receipts. Malaysia is one of the rare net oil-and-gas exporting nations in Southeast Asia.

"There is no risk to the fiscal deficit," AllianceDBS Research economist Manokaran Mottain said. "If the global oil price were to go up, the government will get additional revenue in the form of dividend and tax," he said.

Cost of living has soared in the upper-middle income Southeast Asian nation following levy of a goods and services tax and scrapping of fuel subsidy by previous Prime Minister Najib Razak. That has in-part irked Malaysians, who, last month voted out the National Front coalition that ruled the country for six straight decades.