Malaysia Cushions Domestic Economy From Energy Shocks With Targeted Subsidies -- Economist
By Muhammad Fawwaz Thaqif Nor Afandi
KUALA LUMPUR, March 26 (Bernama) -- Malaysia's policy discipline and targeted subsidy framework have successfully cushioned the domestic economy from external energy shocks triggered by the ongoing West Asia conflict.
Juwai IQI global chief economist Shan Saeed said the MADANI government had navigated the recent oil shock with notable policy discipline and institutional clarity, containing the transmission of external energy volatility into domestic inflation.
“This approach shields households without severing market signals, ensuring both consumer protection and economic efficiency.
"At a time when Brent repriced toward the US$100 to US$130 per barrel range, Malaysia successfully contained the transmission of external energy volatility into domestic price inflation dynamics, anchoring RON95 fuel at RM1.99 per litre for citizens while allowing calibrated market adjustments elsewhere," he told Bernama.
The approach shields households without severing market signals, ensuring both consumer protection and economic efficiency, he said.
At the time of writing (2.55 pm), Brent crude price rose 2.01 per cent to US$104.30 per barrel.
Finance Minister II Datuk Seri Amir Hamzah Azizan recently said the government’s monthly petrol subsidy rose to RM2 billion and the diesel subsidy to RM1.2 billion, totalling RM3.2 billion per month, up from RM700 million previously.
On subsidy reforms, Shan described the BUDI MADANI RON95 (BUDI95) initiative as a structural shift in governance, benefiting approximately 14.8 million recipients with a 300-litre monthly cap.
"The initiative is no longer a subsidy regime; it is targeted economic support delivered through energy pricing. The efficiency gains are clear, including reduced leakages, improved fiscal allocation, sustained consumption stability and preservation of real household income without inducing excess demand distortions or fiscal slippage," he said.
Shan also highlighted three key policy anchors reinforcing economic stability, namely precision subsidy, calibrated price liberalisation and contained inflation at about 1.4 to 1.6 per cent year-to-date in 2026.
"Transitioning from blanket support to targeted delivery enhances fiscal quality and policy credibility, while partial pass-through preserves price discipline and insulates the economy from abrupt inflation shocks.
"The energy shock has not transmitted into second-round inflation, preserving purchasing power and anchoring expectations," he said.
Looking ahead, Shan emphasised that if global oil prices remain structurally elevated, Malaysia’s policy approach must evolve from short-term cushioning to more precise and forward-looking calibration.
“If oil prices persist at high levels, the next phase of policy must focus on sharpening the targeting architecture,” he said.
This would involve transitioning toward real-time, data-driven eligibility systems to further enhance subsidy efficiency and minimise leakages, he said.
At the same time, reinforcing fiscal anchors will be critical, with maintaining the government’s deficit glide path of around 3.5 per cent of gross domestic product (GDP) to help preserve sovereign credibility and sustain investor confidence amid global uncertainty.
Shan also stressed the importance of advancing Malaysia’s long-term energy resilience strategy.
“This includes strengthening national buffers, diversifying energy supply chains and structurally reducing dependence on oil to better withstand future external shocks. The objective is clear, not to subsidise volatility indefinitely, but to build resilience against it,” he said.
From a broader strategic perspective, Shan said Malaysia’s response to the recent energy shock reflects growing policy maturity and coherence under pressure.
He noted that the government has managed to strike a balance between three critical priorities —protecting consumers, maintaining fiscal discipline and preserving market functionality.
“The current framework is holding effectively. However, the strategic imperative now is to convert this cyclical stability into structural resilience across both energy and fiscal domains," he said.
"Energy policy is no longer a tactical lever; it is the cornerstone of macroeconomic credibility. Oil markets do not reward prediction, but are priced on uncertainty, geopolitics and supply risk in real time," he said.
-- BERNAMA