Malaysian Prime Minister (PM) Anwar Ibrahim’s announcement on Monday to recalibrate RON95 petrol subsidies from end-September 2025 reflects the government’s ongoing commitment to fiscal reforms while balancing the impact on living costs. The RON95 price adjustment will be two-pronged: 1) For foreigners, it will increase to MYR2.60/litre from MYR2.05/litre; 2) for Malaysian citizens, it will drop to MYR1.99/litre from MYR2.05/litre, capped at 300 litres/month, except for ride-hailing drivers who can apply for additional allocations. These will take effect from September 30, except for the police and military (from September 27), and B40 recipients of Sumbangan Tunai Rahmah cash aid (from September 28). The move is set to benefit more than 16mn Malaysians.
The RON95 subsidy reform is set to save the government MYR2.5-4bn/year, according to Finance Minister II Amir Hamzah Azizan (which is equivalent to ~0.2% of GDP by our estimates), but lower than ~MYR8bn anticipated previously. PM Anwar stated that the savings would be rechannelled to existing cash handout programs and towards improving healthcare, education, and basic infrastructure. Malaysia’s public finances have been improving continuously, and we foresee room for further consolidation, boding positively for government bonds. The federal government budget deficit as a share of GDP narrowed to 4.1% in 2024 from over 6% during the pandemic crisis. The fiscal deficit of MYR46.7bn in the first seven months of 2025 was lower than in the same period of 2024 amid higher revenue growth relative to spending this year. This trajectory looks on track to hit the official target of 3.8% of GDP in 2025 despite external challenges. S&P Global Ratings has also reaffirmed Malaysia’s sovereign credit rating at A- with a stable outlook on September 19. This reflects S&P’s expectations that the country’s growth momentum and existing policy environment will facilitate modest improvements in fiscal performance over the next two to three years.
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