The government expects subsidies and social assistance to decrease by 15.3%, from RM67.4bil to RM57.1bil, primarily due to the implementation of fuel subsidy rationalisation and lower global oil prices.
The federal government remains committed to an expenditure strategy underpinned by fiscal prudence that also supports economic development, social protection and public service efficiency.
During the year, the government revised the 2025 total expenditure from the approved allocation of RM421bil to RM412.1bil, due to optimisation of emoluments and lower debt service charges (DSC) as well as lesser disbursement for development expenditure (DE).
This adjustment reflects the government’s commitment to reprioritise its expenditure plan in line with fiscal consolidation efforts.
Of this revised total, 80.6%, was allocated to operating expenditure (OE), while the remaining 19.4% earmarked for DE.
The DE in 2025 has been estimated to be reduced by 4.8% to RM80bil, primarily due to lower spending requirements to the economic sector.
Funds have also been strategically channelled to priority projects, ensuring optimal resource allocation and alignment with development planning in the final year of the 12th Malaysia Plan.
Nevertheless, the economic sector remains the largest recipient at 45.8%, followed by the social (34.7%), security (14.8%) and general administration (4.7%) sectors.
The government expects total OE in 2025 to increase by 3.3% compared with 2024, mainly due to higher allocation for emoluments, retirement charges, DSC as well as supplies and services.
These components constituted 72.4% of total OE. In contrast, subsidies and social assistance declined attributed to lower disbursement for fuel subsidies.
Emoluments remain the largest component of OE, representing 31.2% or RM103.5bil, with the allocation projected to increase by 7.9% due to the implementation of the Public Service Remuneration System in December 2024, which revises service schemes, basic wages, retirement benefits and pensions.
Moreover, retirement charges are estimated to increase by 11.6% to RM40.1bil, reflecting the growing number of pensioners and beneficiaries, now approaching one million recipients.
In a significant move to address pension liabilities, the government is finalising the implementation of a defined-contribution scheme to replace the defined-benefits pension scheme for public servants.
Meanwhile, the government expects subsidies and social assistance to decrease by 15.3%, from RM67.4bil to RM57.1bil, primarily due to the implementation of fuel subsidy rationalisation and lower global oil prices.
The re-targeting of the diesel subsidy has effectively curbed leakages, particularly cross-border smuggling activities and yielded significant savings estimated at up to RM600mil a month.
Additionally, the government ended the blanket subsidy for chicken and eggs in August 2025 as part of a phased approach to discontinue subsidies and promote a more sustainable and targeted support system for the poultry industry and consumers.
In return, the government has enhanced the Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah programmes to provide vulnerable groups with targeted support.
In tandem with the initiative to rationalise the subsidy, the government rolled out Budi95, a targeted RON95 subsidy scheme that began on Sept 27 this year.
Looking ahead, in 2026, a total of RM419.2bil has been allocated under Budget 2026, representing 19.7% of GDP, an increase of 1.7% from the revised 2025 budget.
Of this amount, RM338.2bil, or 80.7%, is designated for OE, with the remaining RM81bil allocated for DE.
Higher allocations for emoluments, retirement charges and DSC were partly offset by lower provisions for subsidies, as well as supplies and services, in line with lower global commodity prices and ongoing expenditure rationalisation measures.
As at end-December 2024, total outstanding federal recoverable loans under the development fund stood at RM40.6bil, or 2.1% of GDP, with companies holding the largest share of these loans at RM25.9bil.
In 2026, the government would provide a total of RM1bil in loans through DE to improve infrastructure and enhance the quality of life of the rakyat.
State governments would remain the largest recipient, amounting to RM475mil. Meanwhile, loan repayments have been projected at RM1.5bil.
