The new retail price of RON95 petrol will be RM2.30 per litre while diesel will be RM2.20 per litre, the Domestic Trade, Cooperative and Consumerism Ministry said in a statement.
Currently the market price for RON95 petrol is at RM2.58 per litre, while the market price of diesel is RM2.52 a litre, the ministry said.
"Even with the reduction in the subsidy rate, the Government estimates it will still be spending over RM21 billion to subsidise the prices of RON95 petrol, diesel and LPG for 2014," it said in the statement.
The ministry said the cut in petrol and fuel subsidies were in line with the federal government's subsidy rationalisation policy to ensure the country's financial status remains strong.
It added that the government expects to be able to better curb leakages and smuggling by irresponsible people with the subsidy cut.
It also said the government is looking to trim its fiscal deficit in stages as it has been doing since last year, from 3.9 per cent of the GDP to 3.5 per cent this year, and 3.0 per cent in 2015.
The ministry said the government hopes to balance its budget by 2020.
The ministry said the government is aware of the impact the subsidy cuts will have on the economy and the people, and will be taking steps to lighten the burden.
Among the financial aids will be an increase in the Bantuan Rakyat 1 Malaysia BR1M cash handouts to low-income households, which the ministry said will be announced during the tabling of the 2015 Budget later this month.
Other measures the people can look forward to include aid for families with school-going children as well as tax incentives.
In a bid to reduce its debts, Putrajaya has since September last year taken aggressive cost-cutting measures, including the slashing of fuel and sugar subsidies and approving an increase to electricity tariffs.
All eyes are now on the Budget 2015 that the prime minister is scheduled to table in Parliament on October 10.
The government has yet to announce whether petrol and diesel will be subjected to the Goods and Services Tax (GST).
Malaysia's national debt, currently at 54.6 per cent of GDP, hovers just below a critical legal ceiling and is jointly ranked with Pakistan as having the second highest debt-to-GDP ratio among 13 emerging Asian markets after Sri Lanka, according to data compiled by Bloomberg.
Ratings agency Fitch also maintained Malaysia's sovereign debt outlook at "Negative", rating Malaysia's long-term foreign currency sovereign debt at A minus, which is the last rung of the upper-medium grade ratings.
Putrajaya has continued to rack up debt despite trimming the headline deficit number, saddling the nation with liabilities amassed primarily through government-linked firms.
Malaysian household borrowings have also kept apace, hitting 86.3 per cent of GDP in 2013 when it had been just 60.4 per cent less than six years ago, surpassing even that of the US, which stood at 80.6 per cent registered in the first three months of this year.
NOTE: An earlier version of this story erroneously stated that the current pump price of RON95 petrol and diesel as RM2.58 per litre, RM2.52 a litre respectively. The error was unintentional and is much regretted, and has since been amended.
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