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KUALA LUMPUR - Malaysia has said petrol prices will jump 40 percent from Thursday, as it moves to cut the spiralling cost of subsidies despite the prospect of public outrage.
Prime Minister Abdullah Ahmad Badawi said the price hike could suppress economic growth and drive up inflation as high as 5.0 percent this year, from current levels of 3.0 percent in April.
"The cost of petrol and commodities has risen drastically and so subsidies have to be restructured," he told a press conference.
"God willing I hope Malaysians will not demonstrate over this," he said, referring to fury over earlier hikes in a country where public transport is poor and most people are reliant on their cars.
Abdullah indicated that further increases were in the pipeline as Malaysia moves to completely abandon fuel price controls that would have cost 17.4 billion dollars this year -- about a third of the national budget.
"We are moving towards a market price regime but it has to be step by step, we cannot do it immediately," he said.
The new pump price for petrol will be 2.70 ringgit (0.84 dollars) and 2.58 ringgit for diesel. Petrol currently costs 1.92 ringgit, among the cheapest in Asia.
Abdullah is taking a major political risk in removing price controls even as he attempts to recover from disastrous March elections that dealt the ruling coalition its worst results in half a century.
Rising prices of food and fuel were a major factor in the ballot, which has triggered repeated calls for the premier to stand down.
"It is not an attempt to be popular, we have to think in the best interests of the people," Abdullah said.
The subsidy cut was deeper than anticipated, said Yeah Kim Leng, chief economist with research firm Ratings Agency Malaysia.
"A price increase has been seen as inevitable and expected, but what happened is way beyond expectations," he told AFP.
"We were looking at 20 to 30 percent but 40 percent means the government must be trying to make up for not raising prices last year as well."
Under a revamped subsidy system, drivers of smaller vehicles will receive a cash payment of 625 ringgit to offset the rising cost, equating to subsidising some 800 litres of fuel.
Yeah said the rebates were not large enough to compensate for average use.
"It is clearly only a partial subsidy so we need to see how the lower-income group will be able to now absorb all this," he said.
Domestic Trade Minister Shahrir Samad said the pump price could rise as high as 3.00-4.00 ringgit when price controls are completely removed in August.
Abdullah indicated that economic growth, which the government had tipped at 5.0-6.0 percent this year, would be clipped.
"We will be able to manage at 5.0 percent this year," he said.
Inflation "might go up by 4-5 percent for the year", he added.
Some 13.7 billion ringgit would be saved by the new measure, including 1.7 billion ringgit in a windfall tax charged to independent power producers and palm oil growers who have benefited from rising oil prices.
As part of the subsidy reform, industry and power producers will be charged higher prices for gas from July. Electricity tariffs will rise 18 percent for householders, and 26 percent for commercial and industrial users.
Malaysia has already moved to ban sales to Thais and Singaporeans who make trips across the border to fill up their tanks with fuel that is substantially cheaper here.
On Monday, it shut off petrol sales on its northern border with Thailand and from June 9 it will implement a ban in the southern state of Johor which faces Singapore.
- AFP /ls
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