THE federal government cautioned that its operating expenditure is expected to remain under pressure next year, due to subsidies and social assistance, supplies and services as well as grants and transfers.
Under Budget 2027, the administration of Datuk Seri Anwar Ibrahim has allocated RM376.84bil or 81.9% for operating expenditure.
This represents a 3.8% increase from the revised 2026 budget.
More than half of the operating expenditure will go towards only three items, namely, emoluments, retirement charges and debt service charges.
Emoluments remain the largest component of operating expenditure, representing 29.6% or RM111.6bil. The allocation is projected to grow by 2.9%, reflecting annual salary increments. Additional resources are also provided to address manpower requirements in the health sector, as well as in the education sector following the implementation of the two-cohort Year One intake system.
Allocation for subsidies and social assistance is budgeted to decline marginally by 2.3% to RM72.7bil, representing 19.3% of total operating expenditure.
The moderation reflects the continued implementation of targeted subsidy mechanisms and expected improvements in subsidy management. The implementation of BUDI95 and BUDI Diesel as well as the Electronic Cooking Oil Subsidy System (eCOSS) nationwide is anticipated to generate modest savings in the budget allocation. “These initiatives will further reduce leakages and ensure assistance is directed towards eligible beneficiaries, while strengthening the sustainability of public expenditure,” according to the government.
Debt service charges are projected to increase by 6.5% to RM61bil, accounting for 16.2% of operating expenditure, with domestic debt servicing constituting 98.4% of the total. The recent global bond sell-off has had a relatively limited impact on the domestic yield environment supported by ample domestic market liquidity and a diverse investor base.
Meanwhile, development expenditure is projected at RM83bil in 2027, including allocations for approximately 1,500 newly approved programmes and projects.
The economic sector continues to receive the largest share at 45.4%. followed by social (33.7%), security (14.7%) and general administration (6.2%) sectors.
“In line with the requirements of the Public Finance and Fiscal Responsibility Act 2023, the government remains committed to allocating at least 3% of gross domestic product (GDP) to development expenditure.
“Emphasis will be accorded to programmes and projects that strengthen productivity, improve public service delivery. enhance socioeconomic resilience and contribute to the well-being of the rakyat,” the government said.
It is worth noting that for every RM1 allocated for development, nearly RM2.62 goes to pay salaries, pensions and debt servicing.
Adding together operating and development expenditures, the government is planning to spend RM459.8bil under Budget 2027, equivalent to 19.8% of GDP.
