PETALING JAYA: Economists are looking for Budget 2027 to strike a delicate balance between supporting economic growth and continuing Malaysia’s fiscal consolidation, although they acknowledge that the numbers are tightening.
The Budget 2027 is scheduled to be tabled in Parliament on Oct 9.
TA Securities Research, for one, is describing the Budget outlook as one of continuity under pressure rather than a major change in direction, while projecting that Putrajaya could be tabling a record RM438.9bil Budget, up 3.7% from the research house’s own revised 2026 estimate.
In a detailed pre-Budget note released yesterday, it said Budget 2027 could comprise RM353.1bil in operating expenditure and RM85.8bil in development expenditure, with federal revenue projected to rise 4.9% to a record RM363.5bil, helped by stronger non-petroleum collections, improved tax compliance and the broader implementation of e-invoicing.
TA Research forecasts Malaysia’s fiscal deficit to narrow to 3.3% of gross domestic product (GDP) in 2027, from 3.5% in 2026, keeping the Madani government on course towards its 3% target by 2028.
However, it cautioned: “While we believe the government’s 3% fiscal deficit target by 2028 remains achievable, the margin for error is narrowing.”
The research house expects fiscal consolidation to be pursued through a combination of stronger revenue collection, expenditure reprioritisation, improved tax compliance and gradual subsidy rationalisation, rather than major new taxes.
Chief economist for the Asia Pacific region at Coface, Bernard Aw said Malaysia has made credible progress on consolidation, and the government is committed to maintaining its goal to reach a 3% deficit by 2028.
““The fiscal arithmetic is becoming tighter. Public debt remains elevated, above the Fiscal Responsibility Act 60% medium-term target,” he pointed out.
“That means the government cannot comfortably finance a large permanent increase in spending simply by assuming stronger growth will generate sufficient revenue.”
Aw told StarBiz that the more credible route is therefore reallocation rather than large-scale fiscal expansion, explaining that while Budget 2027 has sufficient fiscal room for meaningful targeted cost-of-living relief, it is probably not for a large un-targeted expansion of subsidies or permanent transfers.
“We see Budget 2027 as a test of whether the government can improve the quality of support while reducing its fiscal leakage,” he said.
Bank Muamalat Malaysia’s chief economist Mohd Afzanizam Abdul Rashid was even more forthright in his assessment and in his belief that the government’s fiscal space is rather limited at present.
“Based on the data for the first half of financial year 2026 (1H26), the fiscal deficit was at RM44.9bil or 4.2% of GDP.
“This was achieved on the back of 12% revenue growth to RM165.4bil, while total expenditure also increased at 11.8% to RM210.3bil.
“At the same time, the size of federal government debt is about 65% of GDP in 1H26,” he noted.
Given that the government will continue to provide the fuel subsidies at higher crude oil prices, Afzanizam told StarBiz that this could mean the fiscal deficit target of 3.5% of GDP for 2026 could be missed.
“As such, we believe that the government is likely to ensure that the government assistance would be more targeted, especially on transfer programmes where the focus should be on the M40 and B40,” he projected.
Meanwhile, on the economic front, TA Research sees GDP growth moderating to 4.6% in 2027, from its 5.1% forecast for 2026.
Of interest, however, the research house regards this as a normalisation rather than a significant slowdown, with private consumption and investment continuing to anchor growth while the services and manufacturing sectors remain key contributors.
It said domestic-orientated sectors such as construction, property, consumer, power and utilities, and financial services are expected to be the primary beneficiaries of Budget 2027, given their direct exposure to fiscal spending and domestic economic growth.
“Nevertheless, externally-driven sectors such as technology and plantation could also benefit from targeted policy measures,” it added.
TA Research also expects development spending to focus on infrastructure, education, healthcare, digitalisation, energy transition and national security.
Concurrently, Coface’s Aw reported that institutional forecasts for Malaysia’s 2027 GDP growth range from around 4.3% to 4.8%, before notably commenting that there is little evidence Malaysia needs a conventional demand stimulus at the minute.
He said: “Domestic demand has already been resilient.
“The stronger policy case is therefore to prioritise structural reforms to improve supply-side productivity while maintaining a targeted safety net for households.”
Aw maintains that focusing on spending and reforms that increase Malaysia’s capacity to produce higher-value goods and services is important, because its current growth is benefiting from favourable technology and investment cycles, especially electronics, semiconductors and data centres.
Likewise, UOB senior economist Julia Goh is anticipating an expansionary and people-friendly budget to address cost of living issues and stagnant wages, and fostering inclusive growth by securing local gains from investments.
“Overall, we are looking at the government to remain committed towards medium-term fiscal consolidation.
“Hence, we expect some tax calibrations to support deficit reduction without disrupting private sector businesses,” she told StarBiz.
While acknowledging that targeted assistance and subsidies can be viewed as election-focused, Goh emphasised that these are also vital stabilisation tools to support household resilience against global price pressures.
On the election angle, Aw believes that with the next general election heavily tipped to take place no later than early 2028, the political incentive for greater household-oriented spending will clearly be stronger than in a normal Budget. “Hence, it is more important to look at the composition of spending than the headline size of the budget,” he noted.
“For example, a temporary, targeted transfer financed partly by subsidy savings is quite different from a permanent increase in subsidies which also has high election sensitivity.
“The former can be accommodated within a consolidation framework while the latter can create a structural expenditure problem,” he said.
More to the point, Aw said political considerations could make fiscal consolidation more complicated, with subsidy reforms and spending commitments possibly becoming politically difficult to remove once given, such as measures framed as cost of living relief.
“Development spending can become harder to prioritise strictly on economic returns because their selection and timing will invite greater scrutiny when electoral incentives are stronger.
“However, the government has established a fiscal-reform framework that can serve as a counterweight to such political pressures, so we will not assume that 16th General Election would automatically bring about fiscal deterioration,” said Aw.
Executive director and economist at the Socio-Economic Research Centre Lee Heng Guie agreed that Budget 2027 should balance fiscal prudence with inclusive economic support, aiming for sustained policy continuity and a clearly articulated economic vision.
He said the Budget must continue to signal a steady, fiscal consolidation governance-driven approach that reduces national deficits and government debt while safeguarding vulnerable populations, accelerating skill development, business facilitation and funding high-growth, high-value future sectors such as semiconductors, energy transition and artificial intelligence, while widening access to financing, technology and overseas markets.
