MALAYSIA will continue to focus on moderating debt accumulation and rebuilding fiscal buffers while continuing to finance development, with domestic financing remaining the main source of government funding and greater mobilisation of private capital aimed at reducing reliance on public borrowing.
The government will continue to manage gross financing requirements and new borrowings prudently, relying on the deep and liquid domestic debt capital market as its principal funding source.
This will allow the country to maintain a predominantly ringgit-denominated debt portfolio and contain exposure to foreign-exchange volatility, while the financing programme will be calibrated to market conditions and funding requirements to balance financing costs and risks.
At the same time, the government will retain flexibility to access international capital markets selectively where this provides benefits in terms of pricing, market development and investor diversification.
Conventional and Islamic instruments, including thematic issuances, will complement rather than replace domestic financing, while supporting the country’s position in global Islamic and sustainable finance markets.
The debt strategy will also increasingly draw on alternative sources of financing as the country expands productive capacity and infrastructure under the 13th Malaysia Plan.
Public resources are expected to play a greater catalytic role in higher-value investment rather than remain the sole source of development financing, with greater mobilisation of private capital, government-linked investment companies, public-private partnerships and other alternative financing arrangements.
The approach comes as the federal government continues to bring its debt position closer to the medium-term threshold under Act 850.
Federal government debt stood at RM1.379 trillion as at end-June 2026, equivalent to 63.1% of gross domestic product, down from 65.2% in 2025.
The government also remained within the statutory limits governing its various debt instruments.
Malaysia’s debt structure provides further protection against currency risks, with domestic debt accounting for 98.8% of outstanding federal government debt and offshore borrowings making up just 1.2%.
The domestic institutional investor base also remains a key source of funding, with resident investors holding RM1.083 trillion, or 78.5% of total outstanding debt.
Of this, the Employees Provident Fund held the largest share at 30.5%, followed by banking institutions at 28.5%.
Debt servicing, however, will remain an important consideration.
Debt service charges are estimated to rise 6.7% to RM57.3bil in 2026, equivalent to 15.8% of total revenue, although the weighted average cost of overall debt eased slightly to 4.05% as at end-June.
At the same time, 63.9% of outstanding debt had maturities of more than five years, with the weighted average time to maturity remaining at 9.6 years, helping to mitigate refinancing risks.
The government will also remain alert to global debt and financial market conditions, with debt levels expected to remain high, particularly among major economies, amid elevated interest rates.
