BUDI Diesel will test govt’s resolve for reform, says analyst

PETALING JAYA: The BUDI Diesel initiative will test whether the government can withstand the political cost of an unpopular reform, while persuading the public that it is needed to rein in mounting subsidy pressures, an analyst says.

Global Asia Consulting director Ahmad Zaharuddin Sani Ahmad Sabri said leaders should not shy away from unpopular decisions if existing problems require tough corrections.

“The most valuable decisions in politics are not necessarily the most popular ones. Sometimes, real leadership is shown when a government is brave enough to take the necessary steps before things get worse,” he told FMT.

He said the cost of diesel subsidies had already placed financial strain on the government.

If left unchecked, it would further limit Putrajaya’s ability to fund public services and assistance.

From July 1, about 700,000 eligible private diesel vehicle owners nationwide will be able to buy subsidised diesel at RM2.10 per litre under the initiative.

Under the new mechanism, buyers must use their MyKad to access the subsidy, which is capped at 200 litres per month. Pickup truck and jeep owners may apply for an additional quota of 100 litres.

Zaharuddin said the initiative could also change the people’s perception of subsidies.

“The initiative does not mean the government is abandoning the people.

“Rather, it marks a shift from a blanket approach, where almost everyone has access, to a targeted system that protects those who truly need help,” he said.

The cost of diesel subsidies increased from RM1.4 billion in 2019 to RM14.3 billion in 2023, with leakages and usage by those outside the target group among the key issues the BUDI Diesel programme aims to address.

Zaharuddin said Indonesia’s fuel price adjustments in 2022 and Sri Lanka’s supply disruptions during its financial crisis offer useful political lessons on the consequences of delaying difficult decisions.

In 2022, Indonesia raised subsidised fuel prices after subsidy costs surged, triggering public anger but easing pressure on government finances.

Sri Lanka’s economic crisis, meanwhile, led to fuel shortages and long queues, showing how delayed fiscal decisions can spill over into supply disruptions.

“This is why it is important for Malaysia to choose a controlled reform path instead of waiting until a crisis forces more drastic action,” he said.

Zaharuddin said the political value of the policy would ultimately be determined by people’s experience after its implementation.

If eligible users face difficulties using MyKad, if the application process for additional quota is cumbersome, or if those who rely on diesel vehicles to earn a living are left out, the opposition could portray the reform as shifting the burden to the people.

On the other hand, smooth implementation and clear protection for target groups could help the government defend the argument that targeted subsidies are fairer than blanket ones.

He said the government must also show where the savings are channelled, including whether they are translated into healthcare, education, infrastructure and social assistance.