2026 has been a rough year for the economy, mainly due to external factors such as the West Asia conflict.
Despite this, Putrajaya isn’t reining in spending. Instead, it is tabling a RM459.8 billion budget for 2027 - the highest yet.
But with domestic political instability looming and the possibility of snap elections, Prime Minister Anwar Ibrahim will have to prove that he is able to both placate the public and be fiscally responsible.
Expectations vs Reality
This year was supposed to be the year that Putrajaya finally tackled runaway subsidy spending, thanks to the introduction of Budi95 and related targeted fuel aid programmes.
Unfortunately, the war on Iran sent fuel prices skyrocketing - and with it the amount spent on subsidies.
The Finance Ministry estimates that fuel subsidies will cost RM40 billion this year rather than the RM15 billion originally budgeted, with the total increasing by an additional RM25.5 billion.
While Putrajaya has restored Budi95 quotas to pre-austerity caps, the market price of RON95 has yet to recover.
Budget 2027 appears to expect prices to remain high, as the fuel subsidy allocation is close to this year’s revised estimate.
For context, the market price of RON95 on Budi95’s implementation on Sept 30, 2025 was RM2.60 per litre - meaning the government only had to subsidise 61 sen per litre.
Now the price for RON95 from Oct 8 to Oct 14 is RM4.67 per litre - meaning Putrajaya has to foot RM2.68 for every litre of subsidised RON95.
This has led to an RM24.9 billion increase in total expenditure this year, with some of the additional subsidy spending offset by various cost-cutting measures such as work-from-home arrangements for civil servants, scaling down official events, and cutting down non-essential overseas travel and training.
Year | Budgeted RM bil | Actual RM bil | Difference RM bil |
|---|---|---|---|
| 2027 | 459.8 | - | - |
| 2026 | 419.2 | 444.1 | 24.9 |
| 2025 | 421 | 412.7 | -8.3 |
| 2024 | 393.8 | 405.5 | 11.7 |
| 2023 | 386.1 | 407.4 | 21.3 |
| 2022 | 332.1 | 395.2 | 63.1 |
| 2021 | 322.5 | 334.5 | 12 |
| 2020 | 297 | 314 | 17 |
| 2019 | 314.6 | 317.5 | 2.9 |
| 2018 | 280.3 | 287 | 6.7 |
| 2017 | 260.8 | 262.6 | 1.8 |
*2026 figures are revised estimate
Source: Fiscal Outlook and Federal Government Revenue Estimates
Revenue up
But it's not all bad news.
The increased spending has mostly been offset by an additional RM20.5 billion in revenue.
Budget year | Expected revenue RM bil | Revised revenue RM bil | Revenue Difference RM bil |
|---|---|---|---|
| 2027 | 380.8 | - | - |
| 2026 | 343.1 | 363.6 | 20.5 |
| 2025 | 339.7 | 336.1 | -3.6 |
| 2024 | 307.6 | 322.1 | 14.5 |
| 2023 | 291.5 | 315 | 23.5 |
| 2022 | 234 | 294.4 | 60.4 |
| 2021 | 236.9 | 233.8 | -3.1 |
| 2020 | 244.5 | 225.1 | -19.4 |
Source: Fiscal Outlook and Federal Government Revenue Estimates
About RM7 billion of that is thanks to the same oil price shocks that burst the budget.
Petronas, which benefited from higher oil prices, will be paying Putrajaya RM27 billion this year instead of the RM20 billion originally targeted in Budget 2026.
Likewise, Retirement Fund Incorporated (KWAP) will also pay out an additional RM2 billion - bringing the total to RM7 billion. The Finance Ministry attributed this to favourable investment performance.
Institution | Budget 2023 RM bil | Budget 2024 RM bil | Budget 2025 RM bil | Budget 2026 RM bil | Budget 2027 RM bil |
|---|---|---|---|---|---|
| Petronas | 40 | 32 | 32 | 27 | 32 |
| Bank Negara | 2.75 | 3 | 4 | 5 | 7 |
| Retirement Fund Incorporated (KWAP) | 3 | 1 | 4 | 7 | 6 |
| Khazanah Nasional Berhad | Not stated | Not stated | 2 | 2 | 3 |
Source: Fiscal Outlook and Federal Government Revenue Estimates
Higher payouts are also expected from Petronas, Khazanah, and Bank Negara next year.
Meanwhile, tax collection has also improved this year, with expectations for better performance next year due to the continued rollout of e-invoicing, higher income tax driven by wage growth, and low unemployment.
Also contributing is the higher sales and services tax collection, which is expected to increase in conjunction with Visit Malaysia Year 2027 and Malaysia hosting the SEA Games.
The growth will bring the government’s total revenue in 2027 closer to the RM400 billion revenue mark.
What will the govt be spending on?
While subsidy spending is what most of us will be concerned with, it only accounts for about 15.8 percent of total spending.
A bigger chunk of expenditure, over 34 percent, is for paying civil servants and retirees, the expenses of which continue to creep up annually.
In terms of the budget as a whole, the social sector will get the most money, RM161.6 billion or 35.1 percent of total spending, primarily focused on human capital development and public welfare.
Meanwhile the government is also spending an additional RM2 billion development expenditure, although the total share of the budget will be lower.
Deficits
On the debt side of things, the fiscal deficit pressure was limited by increased revenue and cost-cutting measures, with the deficit only increasing by 0.1 percentage points to 3.6 percent.
In 2027 it aims to bring this down to 3.3 percent.
No forecast for a debt-to-gross domestic product ratio was stated in the 2027 outlook on debt, other than that Putrajaya will continue with its mission to bring total debt below 60 percent of GDP, as per the Public Finance and Fiscal Responsibility Act.
Statutory debt at the end of 2025 was 63.9 percent of GDP and is expected to be reduced to 62.1 percent by the end of this year, below the 65 percent statutory debt-to-GDP ceiling.
What’s next?
Putrajaya expects continued external uncertainty to pose risks to macroeconomic stability.
However, domestically, a matter not addressed by Putrajaya is how political instability will affect the country.
Anwar’s Madani coalition is in danger of collapsing, and if BN and Perikatan Nasional return to power, it could derail the PKR president’s vision for the economy and country.