KUALA LUMPUR (July 28): A ballooning subsidy bill is expected to wipe out higher dividends from PETRONAS, widening Malaysia’s fiscal deficit beyond official target this year, said BIMB Securities.

Fuel subsidies alone could hit as much as RM40 billion, wiping out much of the savings from recent rationalisation, and the surge in oil prices will lift payout from the company officially known as Petroliam Nasional Bhd to only about RM33.5 billion, according to the research house’s projections.

Malaysia may have to contend with larger budget deficit, as a proportion of gross domestic product, of 3.8% this year versus the government’s aim of 3.5%, the house said.

“Given the limited appetite to introduce new taxes or raise tax rates, tapping a larger dividend from PETRONAS remains the most practical way to offset higher fuel subsidies,” BIMB Securities said.

Oil prices have remained elevated despite talks between the US and Iran to end the months-long war. Brent, the global benchmark for crude oil, has averaged US$92.50 per barrel in the first six months of 2026 and was trading around US$87 on Tuesday.

Budget 2026, meanwhile, is based on Brent averaging US$65 and fuel subsidies of RM21.6 billion. PETRONAS, the single-largest contributor to government coffers, is expected to contribute RM20.0 billion in dividends.

“We expect prices to remain elevated through the year, underpinned by persistent geopolitical risks and resilient demand, particularly from refiners rebuilding inventories and replenishing depleted stocks following several years of tight supply conditions,” BIMB Securities added.