By Rozanna Latiff and Ashley Tang
KUALA LUMPUR, Oct 9 (Reuters) - Malaysia's government on Friday proposed a moderately expansionary budget of 459.8 billion ringgit ($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% of gross domestic
product from 3.5%, 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%, 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 p.m. (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% and 5.2% from a year earlier in 2027, remaining resilient on sustained domestic demand, the reports showed.
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% to 5.3%, faster than the previous estimate of 4% to 5%, the government said. The economy grew 5.7% in the first half of 2026.
Malaysia’s headline inflation was forecast to range between 1.8% and 2.8% in 2027 from a revised estimate of 1.5% to 2.5% 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% so far this year.
PETRONAS INCREASES DIVIDENDS TO GOVERNMENT
The 2027 spending, an increase of 3.6% over this year’s revised budget of 444.1 billion ringgit, includes development expenditure of 83 billion ringgit and operating expenditure of 376.8 billion ringgit, according to the government reports.
Revenue was seen rising by 4.7% to 380.8 billion ringgit in 2027, from a projected 363.6 billion ringgit 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 32 billion ringgit in 2027, up from a revised estimate of 27 billion this year. Petronas was initially due to contribute 20 billion ringgit in 2026.
Higher fuel costs are expected to push subsidies and social assistance spending up to 74.5 billion ringgit this year, a jump of 34.7% from 2025's expenditure. In 2027, the government's subsidy spend was forecast to decline marginally to 72.7 billion ringgit.
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 1,700 ringgit 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.
($1 = 4.0880 ringgit)
(Reporting by Rozanna Latiff and Ashley Tang; Editing by Martin Petty)
