By Rozanna Latiff
KUALA LUMPUR, Oct 7 (Reuters) – Malaysia is likely to deliver a moderately expansionary budget for 2027 on Friday as it looks to boost support for households ahead of a general election that could be called at any time, analysts and economists said.
Elections are not due until February 2028 but growing tensions within Prime Minister Anwar Ibrahim’s ruling alliance have fuelled expectations of an early vote. Anwar said in May he may call for snap polls if internal divisions widen.
Anwar, who is also finance minister, is expected to detail the 2027 budget in parliament at 3:30 p.m. (0730 GMT) on Friday.
The budget could include more tax relief measures and other assistance to address rising living costs, though a broad-based stimulus was unlikely due to the need to maintain fiscal discipline, analysts said.
“While budget matters tend to be a tightrope walk for the Finance Minister of the day, given the tight public finances, the looming (general election) raises expectations for a feel-good budget and should be mildly positive for markets,” RHB economist Alexander Chia said in a note.
Despite fiscal pressures, the government was not expected to introduce any major new taxes in the budget and would look instead to strengthen tax compliance and administration, and close revenue leakages, RHB said.
OCBC economist Lavanya Venkateswaran said Malaysia could see its fiscal deficit fall to 3.6% of gross domestic product this year, short of its target of 3.5%, due to higher-than-expected spending on subsidies and social assistance.
Malaysia has said its fuel subsidy bill could be as much as 40 billion ringgit ($9.79 billion) this year, well above the 15 billion ringgit it set aside in the 2026 budget, following a spike in oil prices from the US-Israeli war with Iran.
CIMB analysts said fuel subsidy expenditure was expected to decline in 2027 as oil prices normalised, leaving room for more targeted financial assistance and welfare measures, such as cash aid transfers for lower-income groups and personal income tax relief.
PETRONAS SEEN INCREASING DIVIDENDS TO GOVERNMENT
The budget may also include a review of the country’s minimum wage, currently set at 1,700 ringgit a month, AmInvestment Bank said. The government has said that any increase in the minimum wage would not apply to micro, small and medium enterprises for now, due to challenging business conditions.
Higher dividends from state oil firm Petronas, a key contributor to public coffers, are likely to boost government revenue, analysts said.
CIMB expects Petronas to contribute about 25 billion ringgit ($6.12 billion) in dividends to the government in 2027, up from an estimated 20 billion ringgit this year.
A special dividend to partly cover higher subsidy costs this year may also be on the table, OCBC and Standard Chartered said.
The budget is also likely to support high-value investment in areas such as semiconductors, artificial intelligence, digital infrastructure and the energy transition, StanChart said. Malaysia has been a beneficiary of the AI boom, with its southern Johor state hosting the fastest-growing data centre hub in Southeast Asia.
The finance ministry said in a pre-budget statement in August that its 2027 expenditure will be focused on 10 key areas, including narrowing regional development gaps, addressing cost-of-living pressures, and boosting investment growth.
Malaysia’s economic growth has surpassed expectations this year, reaching 5.7% in the first half despite the Middle East conflict.
The central bank expects full-year growth to come in at around 5%, at the upper end of its official projection range of a 4% to 5% expansion.
($1 = 4.0840 ringgit)
(Reporting by Rozanna Latiff; Editing by Kate Mayberry)
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