PETALING JAYA: The government’s push to rein in its fiscal deficit may bolster the ringgit and investor confidence.
Under Budget 2027, the fiscal deficit is projected to narrow to 3.3% of gross domestic product (GDP) next year, from an estimated 3.6% this year, with the government targeting a further reduction to 3% by 2028.
IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said fiscal consolidation would reinforce fiscal credibility and debt sustainability, supporting the ringgit over the medium term.
However, he said export performance, capital flows, global interest rates and geopolitical developments would also shape the currency’s outlook.
“Fiscal discipline can strengthen confidence, but a sustainably stronger ringgit requires stronger productivity, investment and export competitiveness,” he told StarBiz.
For businesses, Mohd Sedek said the fiscal deficit consolidation can strengthen macroeconomic stability and investor confidence, but the quality of consolidation matters.
“The government must improve revenue collection and spending efficiency without undermining productive investment or domestic demand,” he said.
Against this backdrop, Mohd Sedek said Malaysia’s economic resilience rests on its dual engines of growth: private consumption and private investment.
“Sustaining household purchasing power and translating investment commitments into actual productive capacity will be critical,” he added.
With speculation that a general election could be on the cards, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said there had been expectations that Budget 2027 would be an “extremely populist” budget.
However, he said the government had struck a balance between supporting the economy and maintaining fiscal discipline.
“We can see that the government is trying their level best to ensure, on one hand, they want to maintain their fiscal discipline, on the other, to ensure that all segments in the economy will benefit from the government’s measures,” he said.
“In a nutshell, it’s a pragmatic budget. They are not too hawkish. At the same time, they are mindful about the need to maintain fiscal discipline.”
He said the government’s commitment to fiscal discipline could support the ringgit by keeping rating agencies’ views on Malaysia’s sovereign rating neutral or slightly positive.
The ringgit has been hovering around RM4.09 against the US dollar, holding up fairly well despite concerns over higher global interest rates, particularly in the United States and Europe, as well as high crude oil prices.
In the near-term, Mohd Afzanizam expects the ringgit to trade within a narrow range, around its current levels, amid expectations of a possible US Federal Reserve rate hike.
Over the longer term, however, he expects Malaysia’s fiscal discipline and diversified economy could attract more foreign funds, providing further support for the ringgit.
MARC Ratings said the government’s target reduction in the fiscal deficit to 3.3% of GDP in 2027 reinforces the government’s commitment to remain on the fiscal consolidation path.
It said the government’s commitment to fiscal consolidation was complemented by higher development expenditure of RM83bil, which could support economic growth and boost greater private sector participation.
It said continued investment can help strengthen Malaysia’s productive capacity, while also creating opportunities for greater private sector participation.
“The focus should therefore not only be on the size of the allocation, but also on the quality and effectiveness of spending and its ability to generate longer-term economic returns,” it noted.
It also welcomed efforts to broaden the revenue base, saying more diversified income sources would help strengthen the government’s fiscal position.
