Putrajaya drives fiscal reform and development investment ahead of Budget 2027

Traders Union
All News
Economic Data
Fiscal reform Budget 2027

Highlights

The government introduced no new revenue measures in Budget 2027, giving investors room to breathe and rejecting a return to GST despite the system’s efficiency.
RM120 billion in investment commitments from six government-linked companies through GEAR-uP is expected to support development, with 2027 growth forecast at between 4.2% and 5.2%.
The fiscal deficit is forecast to fall to 3.3% of GDP in 2027, although fuel subsidies will remain high at RM40 billion amid Brent oil prices of US$85 per barrel.

This article was translated from the original. Read the original version by our correspondent here.

Fiscal and investment strategy for 2027

The Edge Malaysia reported that Second Finance Minister Datuk Seri Amir Hamzah Azizan emphasised the need to “institutionalise change” so that fiscal reforms are not reversed and continue to deliver long-term benefits. He argued that the absence of new revenue measures in Budget 2027 gives businesses room to breathe, while explaining the government’s reluctance to reinstate the Goods and Services Tax, despite acknowledging that the system is efficient for companies able to claim input tax.

Amir also expressed confidence that Malaysia’s economy could grow by more than 5% for a fourth consecutive year in 2027. He said the country is on track to grow by 5.5% this year, including the preliminary estimate for the third quarter, while the official forecast for 2027 is between 4.2% and 5.2%, with growth potentially coming in at the upper end of that range.

To support the next phase of development, the government is also relying on RM120 billion in investment commitments over five years from six government-linked investment companies under the Government-Linked Companies Activation and Reform Programme, GEAR-uP, launched in August 2024. This capital is being deployed alongside the use of national assets and institutions, as well as the flexibility of the modified cash accounting basis, while maintaining the focus on fiscal consolidation.

Broader growth drivers are expected to come from the continued implementation of initiatives under the New Industrial Master Plan 2030, the National Semiconductor Strategy and the National Energy Transition Roadmap. Amir said that implementing policies based on good governance under the Madani Economy framework helps boost investor confidence in Malaysia’s capabilities and direction.

Implications for the deficit, subsidies and investor confidence

Malaysia has reduced its headline fiscal deficit from 6.4% of gross domestic product during the Covid-19 pandemic in 2021 to 3.7% in 2025. The Ministry of Finance forecasts a deficit of 3.6% of GDP for 2026, slightly higher than the 3.5% projected when Budget 2026 was presented in October 2025, even as higher global oil prices pushed the 2026 fuel subsidy bill to RM40 billion, compared with the RM15 billion initially estimated.

This path still puts Malaysia on track to reduce its deficit to 3.3% of GDP in 2027 and 3% in 2028. Amir stressed that the country’s economy, diversified across industries and markets, helps Malaysia sustain growth and adapt to shifts in global trade, further strengthening foreign investors’ confidence in the country.

At the same time, PETRONAS’s contributions remain an important component of the government’s fiscal position. Petroliam Nasional Bhd’s net profit for the first half of 2026 rose 4% year on year to RM27.2 billion, while the component referred to by the Ministry of Finance as “dividends and investment returns from PETRONAS” was revised up to RM27 billion this year from RM20 billion in Budget 2026, and is estimated at RM32 billion in Budget 2027.

The government is also maintaining its Brent oil price assumption at US$85 per barrel in Budget 2027, close to this year’s current average of around US$90 per barrel, while assuming that fuel subsidies will remain at RM40 billion next year. In this context, the effectiveness of reforms such as fuel subsidy rationalisation, public service pension reform and strengthening retirement safety nets will determine how well Malaysia can remain resilient in the face of the next crisis.

In our earlier coverage of Malaysia’s target to reduce its fiscal deficit to below 3% of GDP within two years, we outlined a fiscal consolidation plan focused on targeted subsidy reforms, system digitalisation and private sector participation. We also highlighted that the deficit trajectory depends on the efficiency of subsidy mechanisms and revenue collection, as well as external factors such as oil prices and social spending pressures that could affect debt levels and investor confidence.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.