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Malaysia
This Week in AsiaEconomics

Malaysia’s diesel subsidy removal fuels inflation fears

  • The government will save billions of ringgit every year. But what about worried restaurants, tour bus operators and others?

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People dine in a restaurant in Kuala Lumpur. Malaysian businesses are warning they may have to pass on rising costs to customers. Photo: Shutterstock
Joseph Sipalan
Fears are mounting in Malaysia that everything from eating out to domestic holidays will become more expensive as the cost of an end to generous diesel subsidies ripples out through the economy.
Malaysia’s government – saddled with a 1.5 trillion ringgit (US$318 billion) debt pile partly blamed on losses from the multibillion-dollar 1MDB scandal – scrapped the blanket diesel subsidy last Monday, as its seeks to deflate a ballooning subsidy bill that cost nearly 80 billion ringgit last year alone.

But businesses across sectors from transport to restaurants are now warning they may have to pass on rising costs to customers, amid an end to what had been Southeast Asia’s second-cheapest diesel.

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Domestic tour bus operators have already been forced to increase their rates by as much as 35 per cent, after prices at the pump surged overnight to 3.35 ringgit (71 US cents) from 2.15 ringgit before the subsidy cut.

“Even if the tour bus is not moving, we still need to leave the air conditioning on, otherwise our customers will complain,” Tai Pok Kim, secretary general of the Peninsular Malaysia Tour Bus Operators Association, told This Week in Asia.

If a company has 10 buses, you’re looking at 2,000 ringgit in losses a day
Tai Pok Kim, Peninsular Malaysia Tour Bus Operators Association

To cover an average of 400km (250 miles) per day, tour buses typically need about 150 litres (39.6 gallons) of fuel – meaning the daily cost of operation for each has increased by some 200 ringgit (US$42), he said.

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