The country needs to boost revenues to reduce its deficit and pursue the economic development goals unveiled in a five-year plan in July
[KUALA LUMPUR] Malaysia on Friday (Oct 10) proposed a budget of RM419.2 billion (S$128.7 billion) for 2026, and vowed to pursue further fiscal reforms amid external uncertainties, according to government reports.
The country has maintained steady growth even though its exports have been hit by changes in US tariffs, but it needs to boost revenues to reduce its deficit and pursue the economic development goals unveiled in a five-year plan in July.
Since taking power in 2022, Prime Minister Anwar Ibrahim has introduced measures to bolster the government’s coffers, including a minimum wage hike, an expanded sales tax and the removing of petrol and diesel subsidies for some segments of the population.
“It is only responsible for the government to carry out these reforms especially at a time when fiscal discipline is critical to navigating rising external risks,” Anwar said in a foreword to the government’s fiscal outlook report.
Anwar is set to address parliament at 4 pm (0800 GMT) when he will disclose more details of the budget.
The 2026 spending, up 1.7 per cent on this year’s revised RM412.1 billion, includes development expenditure of RM81 billion and operating expenditure of RM338.2 billion. This is set to be its biggest budget, ever.
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Economy cools on tariff uncertainty
The government said it was on track to narrow its fiscal deficit to 3.5 per cent of gross domestic product next year, from an estimated 3.8 per cent in 2025.
Revenue is seen rising by 2.7 per cent to RM343.1 billion in 2026, from a projected RM334.1 billion this year, according to fiscal and economic outlook reports released alongside Friday’s budget.
State energy firm Petronas, a significant contributor to government revenues, will pay the government a dividend of RM20 billion in 2026, its lowest since 2017, in anticipation of moderating crude oil prices and lower petroleum-related output and revenue.
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Spending on subsidies and social assistance is projected to fall by 14.1 per cent to RM49 billion in 2026 from RM57.1 billion this year, due to lower commodity prices and the government’s efforts to deliver more targeted aid, the reports said.
Economic growth is forecast at 4 to 4.5 per cent in 2026. This year’s growth forecast was lowered to between 4 to 4.8 per cent from an initial estimate of 4.5 to 5.5 per cent in July, due to trade and tariff uncertainties. The US has imposed a 19 per cent tariff on most of Malaysia’s exports to the country.
Malaysia’s headline inflation is projected to remain manageable next year at between 1.3 to 2 per cent, from a revised estimate of 1 to 2 per cent in 2025, the government said.
Despite global market volatility from ongoing tariff tensions and geopolitical risks, the government said Malaysia’s monetary policy remains supportive of the economy and would stimulate growth amid stable domestic prices.
Bank Negara Malaysia kept its benchmark interest rate at 2.75 per cent last month, after cutting it for the first time in five years in July, with most analysts expecting rates to hold until the end of the year. REUTERS, ADDITIONAL REPORTING BY BUSINESS TIMES
