Malaysia has spent more than two years replacing blanket fuel subsidies with targeted ones. Eligible Malaysian drivers still pay RM1.99 a litre for RON95 petrol under BUDI95, and eligible diesel users RM2.10 under BUDI Diesel, but the unsubsidised price is now more than double that. Budget 2027, tabled in Parliament on 9 October by Prime Minister and Finance Minister Anwar Ibrahim, keeps that system in place. The question is how long the government can keep absorbing the gap.

What Budget 2027 says

Reported totals differ because they measure different things. Federal government expenditure for 2027 is RM459.8 billion (RM376.8 billion operating, RM83 billion development), Malay Mail reported, citing the Finance Ministry (MOF), and Reuters used the same figure. The Star reported a "record" RM510 billion, which adds about RM50 billion of investment by government-linked investment companies, public-private projects, federal statutory bodies and MOF Inc companies to that federal spending. The main points for fuel and energy:

  • Subsidy spending: Anwar said more than RM80 billion will go to subsidies, assistance and incentives next year, including an estimated RM40 billion in fuel subsidies "which are expected to remain high", according to Media Selangor's English report; RinggitPlus also put the figures in 2027. The Star described the RM80 billion as spending that had already "exceeded" that level and said the Middle East crisis "pushed fuel subsidy costs to RM40bil", without clearly stating the year. The MOF fiscal outlook uses a narrower category, subsidies and social assistance: RM74.5 billion in 2026, according to Reuters, easing 2.3% to RM72.7 billion in 2027, Malay Mail reported. The two sets of figures are not directly comparable.
  • RON95 and diesel: The budget did not announce any change to the RM1.99 BUDI95 price or the RM2.10 BUDI Diesel price, RinggitPlus reported (via Newswav). Anwar said about 100,000 users, under 1%, used their full 300-litre BUDI95 quota in September, and about 15,000 jeep and pick-up owners used their full 400-litre BUDI Diesel quota, Media Selangor reported.
  • Cash aid: The allocation for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) rises to RM16 billion from RM15 billion. STR recipients get SARA aid of up to RM150 a month, and other Malaysians aged 18 and over get two RM100 SARA payments, The Star reported.
  • Electricity: The speech cited September's increase in the household bill-protection threshold from 600 kWh to 800 kWh a month, covering more than eight million domestic users (Media Selangor). The MOF's fiscal outlook says the 800 kWh limit runs until the end of 2026, Malay Mail reported. No LPG subsidy change was reported.
  • Deficit: The deficit is projected to narrow to 3.3% of GDP in 2027, from a revised 3.6% in 2026 (target 3.5%), with 3% targeted for 2028 (The Star). The MOF's medium-term framework assumes oil at US$78 a barrel over 2027–2029, The Edge reported. Petronas will pay a RM32 billion dividend in 2027, up from a revised RM27 billion in 2026 (Reuters).

In the fiscal outlook foreword, Anwar said the higher 2026 deficit "does not represent a departure from fiscal consolidation", adding: "It demonstrates the value of having built the capacity to respond when circumstances demand it" (Reuters). The full speech is on the MOF budget site (in Malay).

How the reform started: diesel in 2024

The first big step came on 10 June 2024. The government raised the diesel ceiling price in Peninsular Malaysia from RM2.15 to RM3.35 a litre and let it float weekly under the Automatic Pricing Mechanism (APM), Malay Mail reported. Eligible private diesel owners with household income below RM100,000 a year could claim RM200 a month in cash, and firms running 33 listed vehicle types could buy controlled-price diesel through the Subsidised Diesel Control System (SKDS) fleet card. The MOF told Parliament in October 2025 that the diesel reform saves about RM5 billion a year.

On 1 July 2026 diesel was floated nationwide, including in Sabah, Sarawak and Labuan, and the cash aid, by then RM400 a month, was replaced by a pump subsidy, The Edge reported. Under BUDI Diesel, about 700,000 private diesel vehicle owners pay RM2.10 a litre after showing their MyKad, the MOF said. SKDS was extended to about 70,000 commercial vehicles in East Malaysia, while separate schemes for fishermen, smallholders and land public transport were left unchanged, OpenGov Asia reported.

BUDI95: RON95 at RM1.99, with a moving quota

Targeting for RON95 opened to the general public on 30 September 2025, after a staged rollout from 27 September. The subsidised price was cut from RM2.05 to RM1.99 a litre for about 16 million Malaysians aged 16 and above who hold a valid MyKad and driving licence, with a monthly quota of 300 litres, according to the MOF. Since then, the quota has changed several times:

Date Change Source
30 Sep 2025 BUDI95 launched: RM1.99, 300 litres a month MOF
1 Apr 2026 Temporary cut to 200 litres as oil passes US$100 MOF/Bernama
1 Jul 2026 BUDI Diesel at RM2.10; 200-litre quota shared with RON95 The Edge
1 Sep 2026 Basic limit back to 300 litres; up to 400 litres for eligible diesel pick-ups and jeeps Malay Mail/Bernama

Anwar announced the September restoration in his National Day address. When announcing the cut on 26 March, the MOF said "nearly 90 per cent of eligible users consume less than 200 litres per month and will not be affected."

The oil shock and the subsidy bill

In March the MOF said RON95 and diesel subsidies had jumped from about RM0.7 billion in January to up to RM4 billion a month with crude above US$100 a barrel. For more on how the war has hit the region, see our analysis of Asian government responses.

Estimates of the full-year cost differ:

  • The MOF's Pre-Budget Statement of 18 August said the fuel subsidy bill "could reach RM40 billion this year", against RM15 billion allocated in Budget 2026. The fiscal outlook released with Budget 2027 keeps the RM40 billion figure for 2026 (The Edge).
  • In June, HSBC projected the 2026 bill could rise to RM58.4 billion.

Pump prices show the size of the gap. For 8 to 14 October, the MOF set unsubsidised RON95 at RM4.67 a litre and diesel at RM5.27, Bernama reported. That means a government subsidy of RM2.68 a litre on BUDI95 petrol and RM3.17 on BUDI Diesel.

The MOF says targeting electricity, diesel and RON95 subsidies, together with floating chicken and egg prices, has generated savings of about RM15.5 billion a year, which are now helping absorb the higher fuel bill.

Inflation: still low so far

The Department of Statistics (DOSM) reported headline inflation of 1.9% in August 2026, up from 1.8% in July, with transport inflation at 2.0%. Bank Negara Malaysia (BNM) said "targeted fuel subsidies, together with stable demand conditions, are expected to help limit" the pass-through of higher global costs. Budget 2027 forecasts inflation of 1.8–2.8% in 2027, against a revised 1.5–2.5% for 2026, Reuters reported. For BNM's policy rate, see our central bank rates tracker.

Supporters and critics

Supporters defend the broad design. Treasury secretary-general Johan Mahmood Merican said in September that the government is "providing it to all Malaysians, irrespective of income", rather than floating prices and helping only the poor, The Edge reported. In Parliament in February, Anwar said that "targeting it too narrowly creates many complications", according to Malay Mail.

Critics focus on the cost and the missing price signal:

  • World Bank: Lead economist for Malaysia Apurva Sanghi called the BUDI95 reform "a step in the right direction" in April but said fuel subsidies in Malaysia "are regressive, with the T10, T20 benefitting much more compared to others" (Malay Mail). The World Bank also suggested raising the subsidised RON95 price back to RM2.05 (FMT).
  • Khazanah Research Institute: A May commentary said the subsidy "is not a permanent solution" (KRI).
  • Socio-Economic Research Centre: In March, executive director Lee Heng Guie proposed capping the subsidy at RM1 a litre: "The government needs to bite the bullet" (The Edge).
  • HSBC: In June it said "a potential fiscal adjustment on RON95 is likely to be required to keep the 2026 fiscal deficit at 3.5%" (The Edge). No RON95 price change was reported in Budget 2027, and the 2026 deficit has been revised to 3.6%.

How Indonesia compares

Indonesia is holding subsidised fuel prices steady. Deputy energy minister Yuliot Tanjung said on 29 September: "There will be no price increase for Pertalite or other subsidized fuels", ANTARA reported. Pertalite stayed at Rp10,000 a litre in October. Malaysia, by contrast, uses quotas and MyKad checks to limit subsidised volumes.

What to watch

  • Whether RM40 billion is enough: As reported by Media Selangor and RinggitPlus, the 2027 fuel estimate is the same as this year's projected bill. Before the budget, CIMB analysts expected fuel subsidy spending to fall in 2027 as oil prices normalise, Reuters reported. If oil stays well above the MOF's US$78 assumption, the subsidy bill and the 3.3% deficit target could come under pressure.
  • Reactions and debate: The budget now goes to debate in the Dewan Rakyat, where responses from economists, business groups and the opposition will show how the subsidy plans are received.
  • Weekly APM prices: The MOF warned that "any new attacks in the Middle East risk placing upward pressure" on prices (Bernama).
  • Politics: The next general election is not due until February 2028, but Anwar has said he may call snap polls if internal divisions worsen, Reuters reported.

Key numbers

  • RM1.99: BUDI95 price per litre; RM4.67 unsubsidised (8–14 Oct)
  • RM2.10: BUDI Diesel price per litre; RM5.27 unsubsidised (8–14 Oct)
  • 300 litres: monthly basic quota since 1 Sep 2026 (400 for eligible diesel pick-ups and jeeps)
  • RM40 billion: estimated fuel subsidies, the 2026 bill and, per Media Selangor and RinggitPlus, the 2027 estimate, against RM15 billion allocated in Budget 2026
  • RM80 billion+: subsidies, assistance and incentives cited in the Budget 2027 speech
  • RM459.8 billion: 2027 federal expenditure (RM510 billion including GLIC and other investment, per The Star)
  • RM16 billion: STR and SARA cash aid in 2027, up from RM15 billion
  • 3.3%: 2027 fiscal deficit target (2026 revised to 3.6%)
  • RM15.5 billion: annual savings the MOF attributes to subsidy targeting
  • 1.9%: Malaysia's headline inflation, August 2026

This article was researched with AI assistance and reviewed by the NDNews editorial team. It is based on official data and media reports as of 9 October 2026.