Malaysia's fiscal gap set to shrink by 2027 amid higher revenue and spending pressures

BMI reaffirmed its outlook that Malaysia's fiscal deficit will narrow to 3.4% of GDP in 2027, down from an estimated 3.6% in 2026, as the government aims for RM380.8 billion in revenue. The Ministry of Finance has raised its 2026 growth forecast to 4.8-5.3% and expects a moderate slowdown to about 4.5% in 2027. Rising oil prices and stronger petroleum-related earnings are set to increase Petronas dividends from RM27 billion to RM32 billion, modestly raising the share of petroleum revenue in GDP.

However, operating expenditure will stay high at 82% of total spending, fueled by RM16 billion in cash aid for low-income families and a minimum-wage hike to RM2,000. Subsidy and social-assistance budgets have been lifted to RM74.5 billion, though overall spending is projected to ease to RM72.7 billion in 2027. Development outlays will fall to RM83 billion, marking the third consecutive year of decline and raising concerns about future productivity and innovation.