Malaysia Ruling Bloc Loses By-Election Amid Fuel Subsidy Cuts

(Bloomberg) -- Malaysia’s ruling coalition failed to wrest a seat in a by-election in Prime Minister Anwar Ibrahim’s home state on Saturday, with party leaders blaming higher fuel prices for the deeper loss.

Federal opposition pact Perikatan Nasional more than doubled its winning margin in the Sungai Bakap state seat of Penang, according to the Election Commission. The pro-Malay grouping won with a majority of 4,267 votes in the straight fight against Anwar’s Pakatan Harapan, compared with a 1,563-vote margin in last year’s state elections.

Pakatan Harapan’s loss was due to national issues such as Malaysia’s subsidy reforms and rising costs of living, Penang Chief Minister Chow Kon Yeow told reporters late Saturday. Sungai Bakap voters were unhappy with some decisions made by the government, he added.

Diesel prices shot up 56% in June after Malaysia replaced blanket diesel subsidies with targeted assistance, and the government aims to do the same with RON95 — the most widely used gasoline — later this year in order to meet its budget deficit targets. Malaysia spent about 81 billion ringgit ($17 billion) on subsidies in 2023, with blanket fuel assistance making up the bulk of it.

Saturday’s loss risks distracting the government from its plans to cut back on subsidy spending. While the by-election doesn’t affect parliament’s composition — where Anwar commands a two-thirds majority — his approval ratings have taken a hit amid concerns over the economy. Anwar said last week he would prioritize the smooth implementation of diesel reforms before moving forward with those for RON95, following a backlash over higher pump prices.

The by-election results are “a victory for the people,” said Ahmad Fadhli Shaari, the information chief of Islamic party PAS, Malaysia’s biggest national opposition party. “The clearest signal is that this is a rejection of diesel subsidy reforms that have burdened so many consumers,” he said in a statement.

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