KUALA LUMPUR: BMI has maintained its forecast for Malaysia’s fiscal deficit to narrow to 3.4% of gross domestic product (GDP) in 2027 from an estimated 3.6% in 2026.
The Fitch Solutions unit said it expects the government to attain its 2027 revenue target of RM380.8bil, a 4.7% year-on-year (y-o-y) increase from the upward revised 2026 target of RM363.3bil.
“We anticipate that revenue collections will benefit from a favourable growth backdrop.
“The Finance Ministry had revised higher its 2026 growth projections to 4.8% to 5.3% (BMI: 5.1%) from 4% to 5% previously.
“It expects growth to moderate to 4.2% to 5.2% in 2027 (BMI: 4.5%),” BMI said in a statement.
“The Finance Ministry had revised higher its 2026 growth projections to 4.8% to 5.3% (BMI: 5.1%) from 4% to 5% previously.
“It expects growth to moderate to 4.25.2% in 2027 (BMI: 4.5%),” BMI said in a statement.
It further said resilient economic activity should support sales and service tax collections, which have risen from around 7.5% of total revenue in 2009 to 18% by the first half of financial year 2026 (1H26).
Meanwhile, higher oil prices are expected to boost Malaysia’s petroleum-related revenue, supported by its position as a net energy exporter.
The government expects dividends from Petroliam Nasional Bhd or PETRONAS to increase to RM32bil in 2027 from an estimated RM27bil in 2026.
“While this suggests that petroleum-related revenue will probably inch higher from 2.5% of GDP in 2026 to 2.6% in 2027, the broader downtrend in Malaysia’s reliance on petroleum-related income remains intact,” it said.
Operating expenditure is expected to remain high.
It is likely to account for 82% of total expenditure.
This is driven by higher subsidies and social assistance, including RM16bil in cash assistance for low-income households and a rise in the minimum wage to RM2,000 from RM1,700.
The allocation for subsidies and social assistance was raised to RM74.5bil, or 3.2% of GDP, from the original RM49bil, amid higher energy costs.
Although spending is expected to ease to RM72.7bil in 2027, the prolonged US-Iran conflict could increase subsidy spending further.
Meanwhile, the development expenditure is set to fall for the third consecutive year to RM83bil in 2027 (3.6% of GDP), below the RM86bil annual average implied by the government’s RM430bil commitment through 2030.
BMI said lower development spending could weigh on Malaysia’s longer-term productivity and innovation goals, while severe El Nino conditions could prompt additional subsidies for the agricultural sector.
On Oct 9, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim tabled Budget 2027, which totals RM459.8bil in expenditure – a 3.6% y-o-y increase from Budget 2026.
The government has targeted a deficit of 3.3% of GDP in 2027, marking a gradual pace of consolidation from the revised 2026 target of 3.6% and 3.5% previously, it added. — Bernama
