KUALA LUMPUR (June 23): Malaysia’s latest fuel subsidy reform is unlikely to materially lift inflation, as most eligible diesel users and logistics operators will continue to receive subsidised fuel under the expanded Budi Madani framework, according to TA Securities.
In a report on Tuesday, TA said the roll-out of Budi Madani Diesel, which follows the existing Budi95 scheme for RON95 petrol, is expected to have a broadly neutral impact on prices and household consumption while helping the government better target fuel subsidies.
“We expect minimal direct inflationary impact from the reform. Unlike conventional subsidy rationalisation exercises, the majority of eligible diesel users will continue to enjoy subsidised fuel through the MyKad mechanism, while logistics operators under the SKDS (Subsidised Diesel Control System) remain protected,” TA said.
Effective July 1, eligible Malaysians will be able to buy subsidised diesel at RM2.10 per litre, applicable to B10 and higher biodiesel blends. A transitional price of RM2.15 per litre will apply from June 27 to June 30.
The diesel subsidy quota will be integrated with the existing Budi95 scheme, giving eligible users a combined monthly allocation of 200 litres for subsidised RON95 petrol and diesel, rather than separate quotas for each fuel type.
Eligible owners of pick-up trucks and jeeps may apply for an additional 100 litres per month through the Budi Diesel portal.
TA said diesel has a relatively small weight of just 0.2% in Malaysia’s consumer price index basket, compared with 5.5% for petrol, limiting its direct impact on headline inflation.
The continued access to subsidised diesel for commercial operators’ SKDS is also expected to help contain transportation and logistics costs, reducing the risk of pass-through into food prices, retail goods and services inflation.
TA maintained its 2026 inflation forecast at 2.1% to 2.6%. Headline inflation averaged 1.7% year-on-year in the first five months of 2026, while core inflation averaged 2.1%. Headline inflation rose to 2.0% in May, which TA said was still broadly in line with its full-year forecast.
The research house also said the programme should preserve household purchasing power, particularly for rural households, small business owners and pick-up truck users with higher transportation needs.
However, given the relatively narrow beneficiary base compared with the broader population, TA said it does not expect the reform to materially change the overall consumption outlook.
It maintained Malaysia’s 2026 gross domestic product growth forecast at 4.3% to 4.7%, although risks remain tilted to the downside amid geopolitical uncertainties, softer external demand and renewed volatility in commodity prices.
The Budi Madani Diesel programme will replace the Budi Diesel Individu cash assistance scheme, which provided RM200 monthly assistance to eligible diesel vehicle owners.
TA said the new mechanism will expand coverage from about 180,000 recipients under the previous cash aid scheme to around 700,000 eligible diesel vehicle owners nationwide, comprising 400,000 vehicle owners in Peninsular Malaysia and 300,000 in Sabah and Sarawak.
The government expects the reform to generate annual savings of about RM2 billion through better subsidy targeting, lower leakages and the gradual rationalisation of the cash assistance scheme.
TA said total fuel subsidy expenditure reached RM11.2 billion in the first four months of 2026, of which diesel subsidies accounted for RM5.5 billion, or nearly half of the total.
Based on current market conditions, the Finance Ministry has guided that fuel subsidies are still averaging about RM3.5 billion a month, comprising RM2 billion for RON95 and RM1.5 billion for diesel.