KUALA LUMPUR: The implementation of a targeted diesel subsidy for consumers in Peninsular Malaysia, expected to save RM4 billion annually, will strengthen the government's fiscal position and improve resource allocation while reducing fossil fuel consumption and carbon footprint.

Sunway University professor of economics Prof Yeah Kim Leng said the rationalisation is anticipated to benefit both the economy and the government by demonstrating a commitment to necessary reforms for fiscal sustainability and economic efficiency.

"The government's move to rationalise fuel subsidies, starting with diesel, is being carefully executed with various targeted groups shielded from price increases through fleet cards and cash transfers. 

"These targeted subsidies will mitigate the adverse impact on inflation while generating substantial savings, particularly by reducing leakages and cross-border smuggling," he told Bernama.

Prime Minister Datuk Seri Anwar Ibrahim, in a national address yesterday, announced that the Cabinet had agreed to implement a targeted diesel subsidy for consumers in Peninsular Malaysia, estimating an annual saving of RM4 billion.

To curb drastic rises in the prices of goods and services in the Peninsula, the government will provide subsidies for traders using commercial diesel vehicles. 

Anwar also mentioned that the subsidy would involve 10 types of public transport vehicles and 23 types of goods transportation vehicles under the diesel subsidy control system.

Additionally, the government has agreed to provide cash assistance to eligible private diesel vehicle owners, including smallholders, farmers, and traders.

Yeah opined that transport costs should not rise as most operators are provided with targeted subsidies. 

"Likewise, consumer inflation will be directly affected, but monitoring and enforcement by the relevant authorities need to be stepped up to prevent unjustified price increases by businesses, especially in the transport sector," he added.

Meanwhile, Bank Muamalat Malaysia Bhd's chief economist, Dr Mohd Afzanizam Abdul Rashid, said the RM4 billion savings would enable the government to invest in initiatives that increase national productivity in the medium and long term. 

"Diesel subsidy savings will be channelled into the cash payment programme and used to enhance the competitiveness of the education, health and infrastructure sectors," he said.

He added that credit rating agencies might re-evaluate Malaysia's rating outlook to positive if these economic reforms yield results. 

"An improved credit rating could attract foreign investors, particularly in portfolio investments. 

"This would increase foreign holdings in fixed-income instruments such as Malaysian Government Securities (MGS), Government Investment Issues (GII), and corporate bonds, potentially boosting the value of the ringgit," he said.