RHB Research forecasts an improving fiscal deficit trend of 3.5% and 3.2% for 2026 and 2027.
PETALING JAYA: The upcoming Budget 2026 is expected to prioritise fiscal resilience, strengthening economic foundations and uplifting the rakyat, says RHB Research.
The research house forecasts an improving fiscal deficit trend of 3.5% and 3.2% for 2026 and 2027, with RM89bil estimated for development expenditure in the first year of the 13th Malaysia Plan (13MP).
“Next year will be the last opportunity for the unity government to implement more meaningful reforms and growth initiatives before signs of impending national polls become more prominent in 2027,” the research house said in a report yesterday.
RHB Research noted the government will have to tread a fine line to ensure that businesses are not overly burdened by its revenue-raising initiatives, given the absence of a goods and services tax.
The research house added that expenditure optimisation will likely be focused on more targeted subsidies, fiscal consolidation will need to be met by expanding the revenue base.
“The challenge for the government will be to ensure adequate assistance for the lower-income groups while facilitating a conducive business ecosystem to attract new investment to move industries further up the value chain.
“The emphasis on service delivery and digitalisation across the public sector will help to raise revenues by curbing leakages but will require some reforms of the civil service.”
RHB Research said efforts to move Malaysia Inc up the value chain should involve proposals to facilitate foreign direct investment, eliminate excessive bureaucracy, incentivise productivity gains from automation, and develop talent development including technical and vocational education and training.
“We look forward to details on the New Investment Incentive Framework.”
The research house also noted that persistent de-dollarisation trends catalysing long-term structural weakening of the US dollar could shift portfolio flows back to higher-growth emerging markets in 2026.
“We believe the domestic market’s relative underperformance in 2025 has priced in many of the risks,” RHB Research said.
“The market’s fundamental upside will be capped by the strength of corporate earnings unless there is a re-rating supported by sustained new inflows.”
In terms of the property sector, it said it does not expect the government to introduce any tightening measures.
It noted the economic incentives rolled out in Iskandar Malaysia, that is, the Johor-Singapore Special Economic Zone and Forest City Special Financial Zone are intended to spur foreign direct investments, which in turn should encourage foreign buying of properties.
In addition, the government revised the Malaysia My Second Home policy last year to welcome more foreign applicants by introducing a three-tiered system and making the purchase of property a compulsory requirement.
“Just like in previous years, the government has always included affordable or public housing development in the budget to encourage home ownership.
“Likewise, we think some incentives will be announced again for affordable housing and for first-time home buyers.
“Besides this, the Urban Renewal Act may be reiterated again to ensure smoother redevelopment of old buildings.
“The new act will see the consent threshold being raised to 80% across the board, compared to different thresholds for various building categories,” RHB Research further added.
Meanwhile, some Mass Rapid Transit 3 (MRT3) updates are likely to be mentioned in the upcoming Budget for the construction sector.
The Final Railway Scheme for the MRT3 Circle Line was formally signed and approved by Transport Minister Anthony Loke in July, with the land acquisition process expected to be completed by the end of 2026.
“We envisage some details on MRT3 to be announced during the upcoming Budget 2026 (such as the funding mechanism, the latest estimated cost, and also if a fresh round of retendering is required).
“In the revised Budget 2023 (tabled in February 2023), the government announced its intention to review the cost of the MRT3 project in the hope of reducing the total amount to under RM45bil from the estimated RM68bil in 2018,” RHB Research said.
Moreover, further details on the multi-tiered foreign worker levy are likely to be laid out.
The research house expects more details to be disclosed during Budget 2026, as it was planned to be implemented in 2026 under the 13MP.
As for healthcare, RHB Research said aside from allocations that typically favour the public healthcare system, it expects Budget 2026 to earmark specific grants in support of Malaysia Year of Medical Tourism 2026, which coincides with Visit Malaysia Year 2026.
“A stronger promotional push on medical tourism should benefit private healthcare players, as they would drive up foreign patient volumes.
“Medical tourists typically seek more complex procedures and are subjected to prices that are 40% to 50% higher than rates for local patients – since they may be ineligible for discounts.
“That said, this could translate to improvements in bed occupancy rates, higher inpatient revenue intensity, larger average bill sizes and higher margins for private hospitals on a favourable patient mix,” the research house further added.
RHB Research maintained an “overweight” call for the property, construction and healthcare sectors.
