THE Federal Government’s fiscal position improved in 2025, with its deficit narrowing to 3.7 per cent of gross domestic product (GDP) from 4.1 per cent a year earlier as revenue surplus increased and new borrowing declined.
The National Audit Department (JAN) said the deficit reduction was stronger than the 3.8 per cent target set under Budget 2025, putting the government on firmer footing to achieve its medium-term deficit target of below 3 per cent.
Federal Government debt growth also slowed over the five-year period from 2021 to 2025, from 10.2 per cent to 5.9 per cent, while new borrowings fell 8.2 per cent to RM185.577 billion in 2025 from RM202.248 billion the previous year.
The bulk of the new borrowing was used to repay RM106.144 billion in maturing principal and transfer RM75.560 billion to the Development Fund for development expenditure.
The findings were contained in the Auditor-General’s Report (LKAN) 2/2026 on the Federal Government’s 2025 Financial Statements, which was tabled in the Dewan Rakyat today.
Based on its audit, the Auditor-General issued an unqualified opinion, with an Other Matters paragraph, on the Federal Government’s 2025 financial statements.
However, the audit also highlighted weaknesses in the recovery of callable loans, with only RM465 million, or 5 per cent, of RM9.273 billion in arrears collected in 2025.
JAN said loan restructuring needed to be carried out, but new arrears continued to emerge even after loans had been restructured.
The Federal Government also wrote off RM578.32 million in repayment arrears involving 23 loans in 2025, comprising RM127.33 million in outstanding principal and RM450.99 million in interest and late-payment interest.
“The Auditor-General recommends that the Ministry of Finance strengthen monitoring and enforcement, tighten risk assessments and reassess the effectiveness of loan restructuring,” JAN said.
The audit also covered the management of special trust account payments, contractors’ advance payments, receivables for utility relocation costs and the Littoral Combat Ship (LCS) project, based on interim audit work up to July 2026.
For state governments, six states received unqualified opinions, six received unqualified opinions with an Other Matters paragraph, while one received an unqualified opinion with Emphasis of Matter and Other Matters paragraphs.
JAN said all 13 state financial statements for the year ended Dec 31, 2025 had been audited, while certificates were issued for 298 state agencies for the 2024 financial year.
Performance audits were also conducted on 22 state government programmes or activities, while detailed audits of 12 state-owned companies across 11 states identified significant weaknesses in corporate governance compliance requiring attention from management and state governments.
As of Sept 28, 12,117, or 94.4 per cent, of 12,835 issues followed up by JAN had been resolved.
Follow-up action on audit findings had also contributed to RM920.91 million in revenue collections and repayments to the government, including through penalties, rental arrears, liquidated ascertained damages, outstanding land leases, and duty and tax collections.
JAN said all issues raised in its audit reports were continuously monitored through the Auditor-General’s Online Dashboard until the relevant agencies took corrective action.
LKAN 2/2026 identified 650 issues in the dashboard, comprising 347 still under follow-up, 23 resolved and 280 requiring no further action.
The Auditor-General issued 38 recommendations under LKAN 2/2026 for implementation by audited federal ministries and departments.
“The Auditor-General remains independent and firm in providing audit opinions and reporting findings without compromise.
“LKAN is not merely a record of weaknesses, but an instrument to drive corrective action, strengthen governance and ensure every ringgit of public money is accounted for in the interest of the people,” JAN said. - October 5, 2026
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