The upcoming 2026 Budget is poised to guide Malaysia’s economic direction during the initial phase of the 13th Malaysia Plan, according to a joint analysis by the KSI Strategic Institute for Asia Pacific and the Economic Club of Kuala Lumpur. This budget is expected to signal how the government intends to balance immediate cost-of-living support with longer-term structural reforms. A key fiscal objective is a reduction in the deficit, projected to fall between 3.4% and 3.6% of GDP, with an optimistic outlook suggesting it could reach as low as 3.3%.
Economic growth is forecast to range from 3.8% to 4.6%, influenced by global economic conditions, the effectiveness of domestic policies, and the performance of key sectors such as electronics, commodities, and tourism. To support this growth, the government is anticipated to allocate RM86 billion for development projects. On the revenue side, a steady but moderate expansion is expected, driven by improved tax compliance and targeted adjustments rather than the introduction of major new taxes.
A significant focus of the budget will be on subsidy rationalisation, exemplified by the BUDI95 initiative that lowers the price of RON95 petrol. This measure is projected to generate savings of between RM2.5 billion and RM4 billion, depending on global oil prices. The government is expected to pair such subsidy reductions with direct aid and strengthened social safety nets to protect vulnerable households. Additional reforms may include incremental tax changes on specific goods and a broader push for digital tax reporting to improve efficiency and reduce revenue leakage.
Institutional and governance reforms are also on the agenda, with potential legislation covering government procurement, state-owned enterprises, and public information access. The public sector is likely to see increased digitalisation and the adoption of new government technology platforms. For monetary policy, Bank Negara Malaysia is expected to maintain a balanced approach, potentially holding or slightly reducing the overnight policy rate if inflation remains controlled and economic growth moderates.
The 2026 Budget is set to send important signals to financial markets, influencing the ringgit, bonds, equities, and foreign direct investment. A credible fiscal consolidation path is expected to support currency stability and attract strong demand for government securities and sukuk. Policy clarity on issues such as carbon pricing and tax incentives will be crucial for securing long-term foreign investment, shaping capital flows and investor sentiment well into the future.