Kuala lumpur: The government's move to adjust the monthly quota for subsidised BUDI MADANI RON95 (BUDI95) petrol to 200 litres from 300 litres is a much-needed temporary measure to reduce subsidy spending amid the spike in oil prices brought on by the conflict in West Asia, said an economist. The move comes into effect on April 1, 2026.

According to BERNAMA News Agency, IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan stated that the quota adjustment is a step in the right direction, although it might not be the most effective solution in the long term to counter rising subsidy payouts. He noted that the government's action was vital as rising subsidy costs, potentially reaching RM24 billion this year, represent a growing fiscal risk.

Sedek highlighted that delaying action to cut subsidies only increases the eventual cost. Early action allows for gradual and controlled adjustments, while postponement increases the likelihood of more abrupt and disruptive measures later. From a fiscal perspective, he emphasized that the government's decision to cut the quota amount will deliver more stable and predictable savings by reducing the subsidy per litre across total consumption, rather than relying on a smaller group of users exceeding the quota.

He explained that the adjustment in RON95 subsidy quota will create a sharp price cliff, where consumers will suddenly move from RM1.99 to RM3.87 once they exceed the limit. This, he reckoned, distorts behaviour and disproportionately affects those who slightly exceed the threshold, rather than encouraging a broad-based adjustment. Sedek suggested that maintaining the 300-litre quota while adjusting the subsidised price to around RM2.30 would be more effective. Beyond that threshold, prices can remain at RM3.87.

To balance the impact, Sedek recommended strengthening targeted assistance such as Sumbangan Tunai Rahmah (STR) for lower-income households, noting that this would be a more economically efficient and fiscally sustainable approach. He added that support should shift from price-based subsidies to income-based assistance, ensuring assistance reaches those who need it most while allowing the government to gradually reduce broad-based subsidies and strengthen fiscal sustainability.

However, CGS International Securities Malaysia chief economist Nazmi Idrus remarked that the government's quota adjustment is less harmful than a broad-based hike in the RON95 price, considering it as the lesser of two evils. He pointed out that the move would ensure that the poor, who tend to use less fuel, are still protected from higher expenditure. He noted that 90 percent of consumers use less than 200 litres of fuel, which means the majority is still protected, and the subsidy for the transport sector remains intact.

Meanwhile, Sedek observed that the recent fuel price increase remains manageable for consumers, especially given the continued subsidy support. He stated that this has helped stabilize cost pressures and support household consumption. However, he cautioned that this stability is largely policy-driven rather than market-driven, raising questions about sustainability if external conditions remain volatile.