Malaysia to slash federal operating budgets due to Iran war costs

KUALA LUMPUR - Malaysia’s treasury has ordered all federal ministries, departments and agencies to cut their operating budgets for 2026 because of the impact of the Middle East conflict, according to a government official and documents reviewed by Reuters.

The directive comes as Malaysia scrambles to cushion its citizens from soaring prices triggered by the US-Israeli war on Iran.

A government directive dated April 29 and sent by Treasury Secretary-General Johan Mahmood Merican said a sharp spike in energy prices stemming from the conflict has had a direct impact on living costs, swelling the government’s subsidy Bill.

The government’s public subsidy cost was expected to reach RM58.4 billion (S$18.9 billion) in 2026, far surpassing the RM15 billion originally approved for 2026, Mr Johan Mahmood said in the internal document.

As such, all ministries and federal bodies were to review their operational expenditures for the year and submit their proposals for spending cuts by May 15, he said.

The directive proposed several cost-saving measures including restrictions on salaries and allowances for unfilled vacancies, a 10 per cent reduction on services, supplies and assets, and a 20 per cent cut on budgets for statutory bodies and companies limited by guarantees.

Communications Minister Fahmi Fadzil confirmed the directive, adding that there were no plans by the government to re-submit its 2026 Budget to Parliament for now.

“This is... in line with the government’s intention to streamline programmes and their implementation, as Malaysia faces challenges arising from the global supply crisis,” Mr Fahmi, who is also government spokesperson, told a regular press briefing.

He said national oil firm Petronas had given the assurance that the country’s energy supplies were sufficient for May and June, though the government remains concerned about rising prices for fuel products including petroleum and diesel.

The finance ministry has said it now costs the government RM7 billion a month to fund fuel subsidies and other aid measures, a 10-fold increase from its spending prior to the outbreak of the conflict in late February. REUTERS