The End of RM1.99? World Bank Urges RM2.05 Price Tweak

The psychological barrier of RM1.99 per litre for RON95 petrol may soon be a thing of the past. As global oil prices surge past US$100 per barrel due to escalating Middle-East tensions, the World Bank has suggested that Malaysia should consider "tweaking" its fuel pricing policy.

During a briefing for the April 2026 Malaysia Economic Monitor (MEM) report held last week, as reported by The Edge Malaysia, World Bank lead economist Apurva Sanghi proposed a return to the pre-Budi95 price of RM2.05 per litre. But with a national subsidy bill that is now 'growing exponentially,' is a 6-sen hike really enough to stop the bleeding, or is it just a temporary fix for a RM4 billion problem?

The RM4 Billion Problem

Malaysia’s current fuel subsidy model is facing unprecedented pressure. In January 2026, the monthly subsidy bill sat at a manageable RM700 million. By April, that figure skyrocketed to RM4 billion.

This massive jump is driven by the widening gap between the capped domestic price and the global reality. With Budget 2026 originally based on oil at US$65 per barrel, the current US$100+ price point has left a significant hole in the national coffers.

From 300L to 200L: The Quota Cut

To manage these spiraling costs, the government recently reduced the monthly subsidized fuel quota under the Budi95 scheme from 300 litres to 200 litres.

While Sanghi described this as a "step in the right direction," he noted a persistent issue: regressive subsidies. Data shows that the top 10% and 20% of earners still consume disproportionately more fuel than the 200L quota, meaning the wealthiest are still benefiting the most from government spending.

"Demand Destruction" vs. Inflation

One of the most striking points in the World Bank report is the concept of "demand destruction." In countries like Thailand and the Philippines, high fuel prices have forced consumers to drive less, effectively lowering demand.

In Malaysia, low prices have "protected" demand, but the World Bank warns that this can't last forever.

Sanghi argues that providing broad fiscal stimulus (like massive subsidies) in a high-growth environment could actually fuel inflation rather than help it.

Beyond the Pump: The Spillover Effect

The World Bank warns that this isn't just an "oil crisis." High energy costs have second-round effects that hit the "rakyat" where it hurts most:

• Food Prices: Higher transport and logistics costs.
• Agriculture: Rising costs for fertilizers and refined products.
• Household Consumption: As logistics costs rise, the "hidden" cost of living increases, even if the price at the pump stays at RM1.99.

So, Is RM2.05 Inevitable?

The suggestion to return to RM2.05 isn't just about the 6 sen, it’s about signaling a move toward a more sustainable fiscal model. For the consumer, the combination of a lower quota (200L) and a higher price (RM2.05) marks a major shift in vehicle ownership costs for 2026.

What do you think? Should the government keep the RM1.99 cap at all costs, or is it time for a "price tweak" to save the economy?