Malaysia to cut fuel subsidies to bolster economy, but help poor

File photo of a motorist pumping petrol at a gas station in Putrajaya outside Kuala Lumpur.

PUTRAJAYA, Malaysia - Malaysia will cut fuel subsidies to shore up public finances and hand out more to poor families, Prime Minister Najib Razak said on Monday, in a move to boost confidence in his economic leadership as the country comes under pressure from outflows.

The new measures are aimed at reducing Malaysia's fiscal shortfall, among the largest in Asia, and to offset weaknesses in the current account. Poor fundamentals have been blamed for financial market routs in India and Indonesia.

Najib said pump prices for the widely used RON 95 grade will rise by 20 Malaysian sen (S$0.077) to 2.10 ringgit per litre, the first time since December 2010.

The subsidy cut, effective from Sept 3, will save the government an estimated 1.1 billion ringgit this year and another 3.3 billion ringgit in 2014, Najib, also the country's finance minister, told a news conference.

To soften the impact of the petrol price hike, Najib said the government will announce higher cash payouts to low income families when it tables the budget on Oct 25.

Weakened by a poor election performance in May, Najib will be looking to improve perceptions of his economic stewardship as he faces a possible leadership challenge in internal party polls in October. Growing worries over political risk in Malaysia come at a time when Asia's emerging economies are facing turbulence as investors pull money out of stock, bonds and currencies.

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