MALAYSIA’S fiscal deficit is set to narrow to 3.6 per cent of gross domestic product (GDP) in 2026, according to a forecast by BMI, a Fitch Solutions company.
The projection closely mirrors the government’s own estimate of 3.5 per cent, and is seen as a continuation of its medium-term consolidation efforts.
“The budget also marks a positive step towards Malaysia’s medium-term goal of narrowing its budget deficit to three per cent of GDP by 2028,” BMI said in a statement issued on Tuesday.
The forecast follows the unveiling of Budget 2026 by Prime Minister Datuk Seri Anwar Ibrahim on 10 October, which outlines RM419.2 billion in total expenditure. The government projects a decline in the fiscal deficit from 3.8 per cent in 2025 to 3.5 per cent in 2026.
BMI noted that its forecast reflects confidence in the current administration’s consistent adherence to its fiscal targets.
The government anticipates that the narrowing deficit will be supported by a 2.7 per cent year-on-year increase in revenue, even as overall expenditure rises by 1.8 per cent.
Real GDP growth for 2026 is projected to ease slightly to between four and 4.5 per cent, from a downwardly revised range of four to 4.8 per cent in 2025.
BMI also highlighted that Budget 2026 signals a pause in new revenue-raising measures.
“Unlike previous budgets, Budget 2026 signalled a pause in revenue-raising initiatives,” it stated, noting that no new taxes will be introduced beyond the planned carbon tax due to be implemented in 2026.
The carbon tax will initially target sectors such as iron, steel and energy.
The government also expects dividend payments from Petroliam Nasional Bhd (Petronas) to reach RM20 billion in 2026.
“While this would mark the lowest level in nine years amid moderate oil prices, it aligns with policymakers’ broader goal of reducing reliance on petroleum-related income,” BMI added. - October 14, 2025
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