PETALING JAYA: The government must balance rising fuel subsidy costs with efforts to strengthen public finances, say economists.
Their warning that the unchecked continuation of broad-based assistance could limit spending on other priorities came after Prime Minister Datuk Seri Anwar Ibrahim’s announcement under Budget 2027 that fuel subsidies had risen to RM40bil this year, while the government aims to lower the fiscal deficit to 3.3% in 2027 and gradually reduce debt levels.
Universiti Teknologi Mara economist Dr Mohamad Idham Md Razak said maintaining fuel subsidies at RM40bil this year was understandable given uncertainty over global oil prices and mounting pressure on household and business costs.
“However, sustaining such a large subsidy bill over the long term would put pressure on the government’s fiscal space, as these funds could otherwise support healthcare, education, infrastructure and productivity-enhancing investments,” he said when contacted.
“Priority should be to ensure subsidies reach those who genuinely need them rather than relying excessively on broad-based support.
“Targeted subsidies, combined with more efficient energy use and better public transport, would help protect vulnerable households while reducing the government’s exposure to volatile global oil prices.”
Idham said the 3.3% fiscal deficit target for 2027 was achievable, depending on the government’s expenditure and revenue management.
“The higher subsidy bill creates an additional challenge, although some of this pressure can be offset through stronger revenue collection, expenditure prioritisation, and continued fiscal reforms.
“The projected decline in the federal debt-to-GDP ratio from 65.2% in 2025 to 63.7% in 2027 signals the government’s intention to strengthen its fiscal position.
“However, the outcome will depend on actual oil prices, economic growth and the pace of subsidy spending.
Asked whether Budget 2027 struck the right balance, Idham said allocations must protect household purchasing power while keeping public finances sustainable.
“Support for lower-income households and businesses facing higher operating costs remains important, particularly when global energy prices are volatile.
“At the same time, assistance must be well-targeted, and public spending should deliver meaningful economic and social returns. In my view, the most effective approach is to combine targeted short-term relief with longer-term measures to improve wages, productivity and access to essential services.
“This would cushion the immediate impact of higher living costs without allowing subsidies and borrowing to constrain Malaysia’s future development,” he added.
Sunway University economics professor Dr Yeah Kim Leng said maintaining fuel subsidies at RM40bil this year was both unsustainable and unproductive in the long run.
“The public needs to be convinced to shoulder a higher burden of the global oil shock so that not only can the country’s fiscal space be improved, but the spending multiplier can also be much greater in boosting national income and people’s welfare.”
On the government’s target of reducing the fiscal deficit to 3.3%, Yeah said this would depend on whether the projected economic growth was achieved, and global oil prices did not exceed US$100 a barrel for a prolonged period of more than six months.
Yeah also noted that Budget 2027 provided immediate relief to households and businesses while remaining consistent with the government’s fiscal consolidation efforts.
