Malaysia cuts fuel subsidies to fund welfare payments for the poor

Low-income households will receive 29% higher welfare payments as reduced fuel subsidies push petrol and diesel prices up at the pump

Malaysia has cut fuel subsidies in order to help fund welfare payments for low-income households.

Prime Minister Najib Razak’s government reduced petrol and diesel subsidies by 20 sen (around 4p) each, to 63 sen (12p) a litre and 80 sen (15p) a litre respectively, pushing up pump prices.

Malaysia’s government fixes fuel prices below the market rate for consumers and pays the subsidies to fuel retailers to compensate them.

But a recent report by the International Institute for Sustainable Development said because they are blanket subsidies available to all, they benefit energy companies and wealthy households more than they do the poor.

As such, Najib said the move would help fund improved handouts for the poor, which he outlined in the budget announced on 25 October.

Low-income households will receive payouts of 650 ringgit (£128) in 2014, up from 500 ringgit (£99), while pensioners and lower-middle income groups will also receive extra financial assistance.

Malaysia spent more than 24 billion ringgit (£4.7 billion) on fuel subsidies last year, but the cuts are expected to save 3.3 billion ringgit (£645 million) annually.

Analysts said the impact on inflation would be “bearable” as annual consumer price inflation stood at 1.9% in September  –  although some fear gas and electricity price hikes could follow and set in motion more damaging price rises.

According to the World Bank, 1.7% of Malaysia’s 29.2 million people were below the poverty line in 2012 – down from 6% in 2002.