KUALA LUMPUR, Oct 21 — The Malaysian government’s plan to roll back petrol subsidies in mid-2025 is critical for the country’s fiscal reform but is likely to cause public backlash, Economy Minister Rafizi Ramli said.

When tabling Budget 2025, Prime Minister Datuk Seri Anwar Ibrahim suggested there would be tiered subsidy system that would leave things unchanged for 85 per cent of Malaysians but withdraw assistance for the top 15 per cent of income earners.

While this plan could raise inflation and trigger price hikes, the government is prepared for the challenges ahead, Rafizi said in an interview with Bloomberg TV.

"We are prepared for the choppy waters ahead,” Rafizi said, calling the move "a once-in-a-generation decision that affects everyone’s lives.”

The timeline will give the national unity government just two years from the rollback to win back voters, as the next general election must be called in 2027.

Malaysia has subsidised petrol prices for decades through a system first introduced in the early 1980s to help keep fuel prices affordable for Malaysians and support economic growth.

Over the years, it has become a significant part of government expenditure, especially as global oil prices climbed. In 2023, the country spent over RM50 billion on direct fuel subsidies alone.

The Anwar government already did away with blanket diesel subsidies earlier this year and, after several hints, has now given a timeline to do the same with RON95 petrol that is used by the majority of Malaysians.

"My hope, and our responsibility in the government, is to make sure that we manage this properly so that it is sustainable,” Rafizi said.

Malaysians heavily rely on private transportation, making fuel prices a politically sensitive issue.

Inflation remains a major concern, with Rafizi estimating a 12-month inflation cycle after any fuel price hike before stabilizing at around 2 per cent.

Aside from the tiered pricing system, Rafizi said the government could float RON95 and offset this with targetted cash handouts, but said this could cause some to miss out as only 60 per cent of the country’s workers are in the formal sector.

However, Rafizi said the government could not afford further delays, as the country’s fiscal health depends on subsidy cuts and tax base expansion.

Reducing the budget deficit and retaining Malaysia’s top credit score are key priorities for the government to attract investors and strengthen the economy.