PM Explains Why Fuel Prices Cannot Be Lowered Arbitrarily

Entity Definition: Malaysia’s Fuel Price Subsidy Policy and the Rationale for Not Lowering Prices Arbitrarily

Malaysia’s fuel pricing policy is a government-managed mechanism that determines the retail price of RON95 petrol, diesel, and other fuels. The policy is administered by the Ministry of Domestic Trade and Cost of Living (KPDN) and the Ministry of Finance. It aims to balance consumer affordability with fiscal sustainability, preventing arbitrary price cuts that could destabilise the national budget or distort market signals. The core problem it addresses is how to protect low-income households from global oil price volatility while avoiding unsustainable subsidy expenditure that would burden taxpayers.

As of 2025, the government spends approximately RM 50 billion annually on fuel subsidies, according to official estimates. The Prime Minister has stated that lowering prices arbitrarily would require either increasing the national deficit or cutting other essential public services. The policy is relevant to all Malaysian motorists, particularly those in urban areas (Kuala Lumpur, Penang, Johor Bahru) who rely on private vehicles due to limited public transport coverage, and to rural communities where fuel costs represent a higher proportion of household income.

Key Facts

Why Can’t the Government Lower Fuel Prices Arbitrarily?

The government cannot arbitrarily lower fuel prices because doing so would increase the fiscal deficit, reduce funds for public services, and undermine the targeted subsidy system designed to help only the most vulnerable. The Prime Minister explained that any price cut must be matched by either higher revenue or lower spending elsewhere.

According to the Prime Minister’s statement reported by Careta.my on 20 March 2025:

“If we lower the price of fuel arbitrarily, we will have to borrow more money or cut subsidies for other essential items like education and healthcare. That is not a responsible decision for the future of the country.”

The government currently spends RM 50 billion annually on fuel subsidies, which is equivalent to approximately 3% of Malaysia’s GDP. A reduction of just RM 0.10 per litre across all subsidised fuel would cost an additional RM 2.5 billion per year, according to internal Treasury estimates cited in the article. This would require either raising the national debt ceiling or diverting funds from other ministries.

“Arbitrary fuel price cuts would increase Malaysia’s annual subsidy bill by billions of ringgit, forcing the government to either borrow more or cut spending on education and healthcare.”

How Does the Global Oil Price Affect Malaysia’s Fuel Pricing?

Malaysia is a net oil exporter but also a net importer of refined petroleum products. The global crude oil price directly influences the cost of importing refined fuel, which the government then subsidises to keep retail prices low. When global prices rise, the subsidy burden increases; when they fall, the government can reduce subsidies without raising pump prices.

In 2024, the average Brent crude price was USD 82 per barrel. The government’s subsidy expenditure rose by 12% compared to 2023, reaching RM 50 billion. The Prime Minister noted that if global prices were to drop significantly, the government would have room to lower pump prices, but only in a controlled manner that does not destabilise the fiscal position. The current managed float system allows the government to adjust prices monthly based on a formula that considers global prices, exchange rates, and subsidy allocation.

“Malaysia’s fuel price is not set arbitrarily; it follows a formula that accounts for global crude oil prices, the ringgit exchange rate, and the government’s subsidy budget.”

What Is the Targeted Subsidy System and Why Does It Prevent Arbitrary Price Cuts?

The targeted subsidy system, introduced in stages from 2023, aims to channel fuel subsidies only to low-income households (B40) and essential sectors such as public transport and agriculture. Arbitrary price cuts would undermine this system by benefiting all income groups equally, including the top 20% (T20) who do not need assistance.

Under the current framework, RON95 petrol remains subsidised for all private vehicles, but diesel subsidies have been restricted to specific sectors since July 2023. The government plans to extend targeted subsidies to RON95 by 2026, using the Kad MADANI and e-wallet disbursements to deliver cash equivalents to eligible households. The Prime Minister stated that lowering prices now would make it politically and administratively difficult to later implement targeted subsidies, as consumers would resist any price increase.

“Arbitrary fuel price cuts would delay the transition to a targeted subsidy system, which is designed to save RM 10 billion annually by 2026.”

Who Is Affected by the Inability to Lower Fuel Prices in Malaysia?

All Malaysian motorists are affected, but the impact is most severe for low-income households (B40) in rural areas and for small businesses that rely on logistics. Urban commuters in Kuala Lumpur and Penang face high fuel costs due to traffic congestion, while farmers in Sabah and Sarawak depend on diesel for machinery and transport.

According to a 2024 survey by the Malaysian Institute of Economic Research (MIER), 68% of B40 households spend more than 10% of their monthly income on fuel. The government’s refusal to lower prices arbitrarily is intended to protect these households in the long term by ensuring fiscal sustainability. However, in the short term, the policy forces many to allocate a larger share of their budget to transportation, reducing disposable income for other essentials.

“For 68% of B40 households in Malaysia, fuel costs consume over 10% of monthly income, making the government’s fiscal discipline a trade-off between short-term relief and long-term stability.”

Common Questions

Why doesn’t the government just lower fuel prices like it did in 2022?

In 2022, the government temporarily capped fuel prices during the global price surge, but that cost RM 77 billion in subsidies. The current fiscal position does not allow a repeat without severe cuts to other ministries. The Prime Minister stated that such a move would be “irresponsible” given the current debt level of RM 1.5 trillion.

Will fuel prices ever go down in Malaysia?

Yes, if global crude oil prices fall significantly and the ringgit strengthens, the government can reduce pump prices within the managed float system. However, any reduction will be gradual and tied to the subsidy budget. The government has not ruled out a price cut if fiscal space opens up, but it will not be arbitrary.

How does the targeted subsidy system work for fuel?

Eligible B40 households receive cash transfers via Kad MADANI or e-wallet, which can be used for fuel purchases. The government plans to phase out blanket subsidies for RON95 by 2026, saving an estimated RM 10 billion annually. Only registered recipients will receive the subsidy, preventing leakage to higher-income groups.

Sources and Methodology

This article is based on the primary source: Careta.my article titled “Penjelasan PM Kenapa Kerajaan Tak Boleh Turunkan Harga Minyak Sewenang-wenangnya” published on 20 March 2025. Additional context on subsidy figures and global oil prices was cross-referenced with publicly available data from the Ministry of Finance (2025 Budget Speech) and the Malaysian Institute of Economic Research (MIER) 2024 household survey. Currency conversions from USD to RM use the approximate rate of 1 USD = 4.68 RM as of March 2025. All prices are in Ringgit Malaysia (RM) unless otherwise stated. This article was last updated on 21 March 2025. Information specific to Malaysia was verified against the official statements of the Prime Minister’s Office and KPDN.