PETALING JAYA: Malaysia is unlikely to need drastic cuts to development spending under Budget 2027 despite higher global oil prices, as larger PETRONAS dividends, stronger tax revenue and continued access to borrowing could cushion the fiscal impact, experts say.
Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong said the higher fuel subsidy bill would remain a burden, but should not derail long-term development plans as the pressure is cyclical rather than structural.
“The burden has been largely offset, although not completely offset,” he said, referring to the likely increase in PETRONAS dividend payments as oil prices rise.
Wong said the government’s fuel subsidy bill, initially projected at about RM20bil under Budget 2026 based on crude prices of between US$60 (RM244) and US$70 (RM285) a barrel, could rise to more than RM40bil if prices remain near current levels.
However, he said PETRONAS dividends could rise by an estimated RM3bil to RM4bil for every US$10 (RM40) increase in crude prices.
With oil prices about US$40 (RM160) higher than the Budget 2026 assumption, this could translate to an additional RM12bil to RM16bil in dividends.
He estimated that the dividend payout to the government could reach RM22bil to RM26bil next year, compared with the RM20bil assumed for this year.
“Even though on a net basis there is still a burden, I do not see it as a major problem for Malaysia’s fiscal position,” Wong said.
He said firmer economic growth, including exports supported by artificial intelligence-related investment, should generate additional tax revenue and further ease the fiscal pressure.
Wong added that Malaysia’s ability to borrow at relatively low rates reflects market confidence in the sustainability of government debt.
Economy Minister Datuk Seri Akmal Nasrullah Mohd Nasir said development expenditure under Budget 2027 would proceed as planned despite pressure from higher global oil prices.
He said the government must address near-term oil-price pressures while maintaining its long-term development commitments.
Budget 2027 is scheduled to be unveiled this Friday.
Tax expert Datuk Koong Lin Loong said the government should continue providing aid to households most affected by higher living costs, though it should shift from providing broad subsidies and move towards more targeted assistance.
“Give the assistance rather than the subsidy,” he said, adding that aid must reach vulnerable households, particularly the hardcore poor, without causing wastage or leakages.
Koong said higher crude prices would affect more than just the government’s RON95 petrol and diesel subsidy bill.
The increase would also raise transport, logistics, electricity and production costs, which could be passed on to consumers through higher prices.
He said lower-income households, as well as the lower segment of the M40 group, would need protection against rising living costs.
Koong also called for targeted measures for small and medium enterprises affected by higher energy costs, especially firms in logistics, construction and energy-intensive sectors.
Instead of blanket aid, he said the government could offer working-capital guarantees, preferential financing and support for firms investing in automation, AI and energy efficiency.
“It cannot be too generic and generalised,” he added.
He said development spending should be retained for projects with high economic multipliers, particularly those that improve productivity and reduce energy use.
For Budget 2027, Koong also suggested an oil-price assumption of around US$85 a barrel, compared with the US$65-US$70 (RM265-RM285) range used for Budget 2026, to build in a more realistic buffer against market volatility.
