PETALING JAYA: Budget 2026 is shaping up to be one of cautious optimism as policymakers balance fiscal discipline with social support.
The record RM419.2bil spending plan, unveiled last Friday, underscored Putrajaya’s continued reliance on the Madani framework while signalling a preference for incremental adjustments rather than bold reforms.
According to CGS Interntional (CGSI) Research, Budget 2026 continues to ride on the existing Madani framework.
The research house noted that there was no major overhaul of the economy, with announcements anchoring on fine-tuning policies.
Among the key thrusts, it cited, rising allocation for cash handouts, emphasis on artificial intelligence and digitisation, as well as commitment to the anticipated carbon tax.
CGSI Research described the fiscal tone as restrained, saying: “We see a more prudent approach for Budget 2026 with softer growth in revenue and expenditure reflecting the struggle to maintain a tighter fiscal deficit in the midst of lower oil-related revenues and a weak gross domestic product (GDP) outlook.”
The Finance Ministry (MoF) has projected GDP growth of 4% to 4.5% for 2026, compared with a revised 4% to 4.8% this year, alongside a targeted fiscal deficit of 3.5% of GDP.
Federal government debt is expected to ease slightly to 64% of GDP in 2025, while total spending will rise modestly to a record level.
CGSI Research viewed the budget through main takeaways: Quick win, limited reforms and private sector-driven development.
It said: “Despite a rather prudent budget, we see bright spots including the RM100 cash handouts to the masses, incentives for civil servants and tax relief for various sectors.”
However, it noted that the government kept mum on certain issues pertinent to the 13th Malaysia Plan including the multi-tier foreign worker levy, reduction in foreign worker ratio, and increase in retirement age.
On spending priorities, CGSI Research highlighted a weaker investment push, observing that 2026 development expenditure (DE) is a modest RM81bil, with 2025 DE also revised down from RM86bil to RM80bil.
Nevertheless, it said the government appeared to be “emphasising a bigger role for the private sector in driving the national agenda”.
“We see a greater push for government-linked companies’ involvement through the Gear-Up programme, easier procurement for skilled foreign talent, and stronger support in high value sectors,” it added.
In a political context, CGSI Research raised the possibility that the “lack of negative surprises, dearth of major reforms, and a repeat of the popular RM100 cash support for the masses implies a possibility of an early election.”
On the fiscal outlook, it pointed out that while Budget 2026 saw continued lowering of the fiscal deficit, debt metrics worsened with government debt at 65.8% in 2026 from 64.7% in 2025, signalling potential for statutory debt to inch closer to the 65% debt limit.
It also cautioned that debt service charges would rise to 16.9% of revenue in 2026, from 16.3% in 2025.
CIMB Research viewed the budget as an exercise in maintaining equilibrium amid weaker global conditions.
“Budget 2026 reflects a continuation of recent Madani budgets, which have juggled the priorities of supporting and uplifting households via income enhancements and addressing cost of living pressures; calibrated fiscal consolidation though revenue broadening, reducing leakages and progressive redistribution as well as sustaining high economic growth and catalysing investments,” it said.
The research house noted that the balancing act “is happening under more challenging external conditions in 2026, as acknowledged in the more tepid outlook for growth and current account.”
CIMB Research added that the fiscal impulse towards domestic demand offered a partial offset to external headwinds, although it projected continued drags to growth and inflation.
On bond market implications, it highlighted that estimated gross Malaysian Government Securities/Government Investment Issues supply in 2025 (RM170.5bil) implied the chance of lighter bond supply into end-year, while the narrower deficit may help steady gross issuances at RM173bil to RM178bil in 2026 on heavier maturities.
The research house expected net borrowings to decline slightly in 2026 on further fiscal consolidation to RM74.6bil, while statutory federal government debt would remain steady below 65% through 2026.
It also said “debt service charges are projected to increase at a milder pace of 7.6% year-on-year (y-o-y) to RM54.3bil in 2025 and 7.4% y-o-y to RM58.3bil in 2026”.
Meanwhile, Kenanga Research took a measured view of the growth outlook, saying the MoF’s GDP growth target is realistic and consistent with its outlook.
“Heightened external risks, including higher US tariffs, will cap Malaysia’s export performance, but resilient domestic expansion should sustain growth trajectory,” Kenanga Research said, maintaining its 2026 GDP growth forecast at 4.2%.
It projected a higher debt level of 65.9% in 2025, rising to 66.5% in 2026, before trending lower to below 60% in the medium term as fiscal reforms progress.
“Statutory debt is expected to remain manageable, well below 65% limit,” it said, while expecting debt service charges to rise to 17% of revenue in 2026, driven by high borrowing costs.
“Structural reforms and improved fiscal credibility should help moderate future debt servicing pressures,” Kenanga Research added.
