World Bank doubts govt's claim of RM2.5b fuel subsidy savings

Malaysia’s lead economist from the World Bank has questioned the government’s claims that an estimated RM2.5 billion could be saved following the implementation of the Budi95 programme.

At an event organised by the Malaysian Economic Association (MEA) in Putrajaya today, The Edge reported Apurva Sanghi urging for more transparency on the government’s calculations.

On Sept 22, Finance Minister II Amir Hamzah Azizan said the new projected savings under the Budi95 plan are between RM2.5 billion and RM4 billion annually, depending on crude oil prices.

“It would be nice to see the math, and we haven’t seen it from the Finance Ministry.

“The claimed savings of RM2.5 billion would depend heavily on foreigners like me paying full price, and on T20 Malaysians or others exceeding the 300-litre quota.

“But how many foreigners or Malaysians actually do that? Even the T1 don’t exceed 300 litres on average,” Apurva reportedly said during a Budget 2026 debate.

Last week, Prime Minister Anwar Ibrahim announced during the tabling of Budget 2026 that Budi95 could potentially save the government at least RM2.5 billion, with the initiative allowing Malaysians to enjoy RON95 at RM1.99 per litre.

He added that the government’s effort to rationalise subsidies was necessary, as blanket subsidies had long benefitted foreigners and large companies.

Anwar also said subsidies should remain a right for Malaysians, adding that the diesel subsidy savings also allowed the government to ease the people’s burden through initiatives such as the “Sara Untuk Semua” programme launched in August.

Phasing out blanket subsidies

While applauding efforts to pursue subsidy reforms after repeated delays by previous administrations, Sanghi nevertheless questioned if the government had further plans to eventually phase out blanket subsidies altogether.

“If this is part of a larger roadmap to tighten the quota or phase out the T20 group, that’s fine. But then make it public.

“Surprises are great in K-dramas, not in policy reforms,” he said, noting the contradiction between the country’s green transition ambitions and its policies that still encourage private fuel use.

He said the government could also learn from its previously successful implementation of diesel subsidy reform, which he credited as a result of price flotation.

Sanghi explained that such a model would allow the government to reflect true market costs while assisting lower-income groups through direct aid, instead of maintaining universal subsidies that disproportionately benefit wealthier households.

He also suggested price flotation as a “textbook fix” for subsidy reforms, and added that most effective reform models would usually combine price liberalisation with targeted cash transfers.

“The diesel reform worked because prices were floated. That lesson seems not to have been applied to RON95,” he said.

Reducing leakages and smuggling

In response to Sanghi’s suggestions, Finance Ministry Treasury secretary-general Johan Mahmood Merican said the government’s immediate priority would be to reduce revenue leakages and cross-border smuggling before implementing a more refined subsidy reform system.

“Based on our analysis, consumption of RON95 in Malaysia is about 18 billion litres. You can only account for about 78 percent as household consumption, while the balance could include corporate use or leakages. We’ve all seen RON95 being resold in bottles across the border,” he said.

Johan also stressed that the Budi95 scheme would be expected to follow the government’s previous diesel subsidy reform, which eventually led to a sharp drop in diesel sales and a rise in direct commercial purchases.

Nevertheless, he said the government would be open to adjusting parameters such as price thresholds and quota limits once clearer results from the implementation data become available.

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