By Rozanna Latiff and Danial Azhar
KUALA LUMPUR (Reuters) -Malaysia on Friday proposed a budget of 419.2 billion ringgit ($99.24 billion) for 2026, and vowed to pursue further fiscal reforms amid external uncertainties, according to government reports.
The Southeast Asian country has maintained steady growth even though its exports have been hit by changes in U.S. 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, Prime Minister Anwar Ibrahim 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," Anwar said in a foreword to the government's fiscal outlook report.
Anwar is set to address parliament at 4 p.m. (0800 GMT) when he will disclose more details of the budget.
The 2026 spending, up 1.7% on this year's revised 412.1 billion ringgit, includes development expenditure of 81 billion ringgit and operating expenditure of 338.2 billion ringgit.
ECONOMY COOLS ON TARIFF UNCERTAINTY
The government said it was on track to narrow its fiscal deficit to 3.5% of gross domestic product next year, from an estimated 3.8% in 2025.
Revenue is seen rising by 2.7% to 343.1 billion ringgit in 2026, from a projected 334.1 billion ringgit this year, according to fiscal and economic outlook reports released alongside Friday's budget.
State energy firm Petronas, a significant contributor to government revenues, will pay the government a dividend of 20 billion ringgit 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% to 49 billion ringgit in 2026 from 57.1 billion ringgit this year, due to lower commodity prices and the government's efforts to deliver more targeted aid, the reports said.
Economic growth is forecast at 4% to 4.5% in 2026. This year's growth forecast was lowered to between 4% to 4.8% from an initial estimate of 4.5% to 5.5% in July, due to trade and tariff uncertainties. The United States has imposed a 19% tariff on most of Malaysia's exports to the country.
Malaysia's headline inflation is projected to remain manageable next year at between 1.3% to 2%, from a revised estimate of 1% to 2% 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% last month, after cutting it for the first time in five years in July, with most analysts expecting rates to hold until the end of the year.
($1 = 4.2240 ringgit)
(Reporting by Rozanna Latiff, Danial Azhar and Ashley Tang; Editing by David Stanway)
