The Malaysian government expects its expenditure on fuel subsidies to reach nearly RM40 billion by the end of 2026. This projection, shared by the Finance Ministry in the Dewan Rakyat, represents a significant increase from the RM15 billion originally allocated in the 2026 Budget. The rise in costs is primarily attributed to volatile global oil prices, which have been heavily influenced by the ongoing conflict in West Asia and subsequent disruptions in the energy market.
Subsidy spending saw a sharp increase in the first half of the year, rising from approximately RM800 million per month in January and February to about RM5 billion per month during March and April. As global oil prices moderated in May and June, monthly subsidy expenditure also eased to around RM4 billion. The government continues to monitor these figures closely, noting that the final annual total remains subject to further developments in the regional crisis.
Despite the higher costs, the government maintains that the current subsidy framework, including the Budi Madani program, remains effective in supporting the public. By utilizing a targeted approach, the government has been able to keep the price of RON95 petrol at RM1.99 per litre for eligible citizens. Officials emphasize that this targeted system helps prevent the fiscal strain associated with previous blanket subsidy models.
To manage the fiscal impact, the government is leveraging increased petroleum-related revenue. Every US$1 per barrel increase in global crude oil prices is estimated to generate roughly RM300 million in additional federal revenue, excluding dividends from Petronas. This additional income acts as a financial buffer, helping to offset a portion of the increased subsidy burden and ensuring the government can continue to meet its operating expenditure requirements without immediate changes to existing fuel prices.