Malaysia plans US$112.5 billion budget for 2027 ahead of possible election

[KUALA LUMPUR] Malaysia’s government on Friday proposed a moderately expansionary budget of RM459.8 billion (US$112.48 billion) for 2027, ramping up spending ahead of a possible election despite growing fiscal pressure from a jump in global oil prices.

Malaysia’s annual subsidy bill has ballooned amid higher energy costs from the US-Israeli war on Iran, prompting a narrow upward revision of its 2026 fiscal deficit target to 3.6 per cent of gross domestic product from 3.5 per cent, according to 2027 fiscal and economic outlook reports released with the budget.

Prime Minister Anwar Ibrahim, however, downplayed worries of fiscal slippage, saying Malaysia remained committed to its medium-term fiscal objectives. In 2027, the deficit was projected to decline to 3.3 per cent, he said.

“This does not represent a departure from fiscal consolidation. It demonstrates the value of having built the capacity to respond when circumstances demand it,” he said in the foreword to the fiscal outlook report.

Anwar, who is also finance minister, was scheduled to announce more budget details in parliament at 3.30 pm (0730 GMT) on Friday.

His coalition has faced a series of setbacks in regional elections in recent months, with simmering tensions within his multi-party ruling alliance fuelling expectations of early national polls.

The next general election is not due until February 2028 but Anwar has said he may call for snap polls if internal divisions worsen.

Outlook for 2026 growth raised

Malaysia’s economy was expected to expand between 4.2 per cent and 5.2 per cent from a year earlier in 2027, remaining resilient on sustained domestic demand, the reports showed.

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Malaysia had in March raised its growth forecast for 2026 on a better-than-expected economic performance and hiked its projections further in its latest outlook.

Economic growth in 2026 was now expected to come in at the upper end of the projected range of 4.8 per cent to 5.3 per cent, faster than the previous estimate of 4 per cent to 5 per cent, the government said. The economy grew 5.7 per cent in the first half of 2026.

Malaysia’s headline inflation was forecast to range between 1.8 per cent and 2.8 per cent in 2027 from a revised estimate of 1.5 per cent to 2.5 per cent in 2026, reflecting carry-over effects and lagged transmission of higher energy, food and other input costs, it added.

Its monetary policy remains consistent with the outlook for price stability and sustainable economic growth, it said. The central bank has maintained its benchmark interest rate at 2.75 per cent so far this year.

Petronas increases dividends to government

The 2027 spending, an increase of 3.6 per cent over this year’s revised budget of RM444.1 billion, includes development expenditure of RM83 billion and operating expenditure of RM376.8 billion, according to the government reports.

Revenue was seen rising by 4.7 per cent to RM380.8 billion in 2027, from a projected RM363.6 billion this year on the assumption of resilient albeit moderating economic growth, the reports said.

State energy firm Petronas, a significant contributor to public coffers, will pay the government a dividend of RM32 billion in 2027, up from a revised estimate of RM27 billion this year. Petronas was initially due to contribute RM20 billion in 2026.

Higher fuel costs are expected to push subsidies and social assistance spending up to RM74.5 billion this year, a jump of 34.7 per cent from 2025’s expenditure. In 2027, the government’s subsidy spend was forecast to decline marginally to RM72.7 billion.

Anwar is expected to unveil more tax relief measures, cash aid transfers, and other assistance to address rising living costs on Friday, and may announce a review of the minimum wage, currently set at RM1,700 a month, analysts said.

In a 10-page article in its economic outlook, the government argued that stronger wage reform, particularly in the micro, small and medium enterprise sector, was needed to address substantial salary gaps across industries and ensure that strong economic growth translated into better incomes overall.

“Uplifting wages in labour-intensive MSMEs must be made the primary focus to generate a broad-based ‘big-push’ impact in rebuilding the wage ladder, enabling more workers to benefit from higher-value activities and meaningful wage progression,” it said. REUTERS