Malaysia announces budget spending of $144b in 2026, vows more reforms

KUALA LUMPUR - Malaysia’s Prime Minister Anwar Ibrahim on Oct 10 proposed a budget of RM470 billion (S$144 billion) for 2026, as the government vowed to pursue further fiscal reforms amid external uncertainties.

The South-east Asian 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, Mr Anwar 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,” Mr Anwar said in a foreword to the government’s fiscal outlook report.

Mr Anwar in his address to Parliament gave a revised figure for the budget at RM470 billion, up sharply from the RM419.2 billion figure released earlier.

The 2026 spending, up 14 per cent on this year’s revised figure of 412.1 billion ringgit, includes RM338.2 billion or operating expenditure and 81 billion ringgit for development expenditure, and includes investments from state-linked companies and statutory bodies.

The 2026 spending, up 14 per cent on the 2025 revised figure of RM412.1 billion, includes RM338.2 billion for operating expenditure and RM81 billion for development expenditure, and includes investments from state-linked companies and statutory bodies.

Mr Anwar also said that his government anticipates savings of RM15.5 billion annually through its targeted subsidy approach, adding that a more focused approach to diesel subsidies had resulted in savings of RM5 billion.

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 in 2026, 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 in 2025, according to fiscal and economic outlook reports released alongside the Oct 10 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.

Spending on subsidies and social assistance is projected to fall by 14.1 per cent to RM49 billion in 2026 from RM57.1 billion in 2025, due to lower commodity prices and the government’s efforts to deliver more targeted aid, the reports said.

Economic growth is forecast at 4 per cent to 4.5 per cent in 2026.

The 2025 growth forecast was lowered to between 4 per cent to 4.8 per cent from an initial estimate of 4.5 per cent to 5.5 per cent in July, due to trade and tariff uncertainties. The United States 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 in 2026 at between 1.3 per cent and 2 per cent, from a revised estimate of 1 per cent 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 in September, after cutting it for the first time in five years in July, with most analysts expecting rates to hold until the end of 2025.