This article first appeared in The Edge Malaysia Weekly on July 27, 2026 - August 2, 2026

WITH the passing on July 16 of the new National Trust Fund (KWAN) Bill 2026, which introduces mandatory contributions from the federal government and withdrawal limits, Malaysia has given itself a second chance to better ensure the nation’s finite resource wealth is grown and preserved for future generations.

“I see the new National Trust Fund Act 2026 as a positive step. It retains many of the positive features of the previous Act, the Akta Kumpulan Wang Amanah Negara 1988, while introducing new rules that could strengthen the governance of Malaysia’s natural resource wealth,” says Sri Murniati Yusuf, IDEAS senior fellow and public sector governance specialist, who wrote about the need to introduce more precise rules governing federal government deposits into KWAN in an IDEAS policy paper in 2015.

The new rules, she says, provide greater clarity on how much revenue from natural resources should be deposited into the fund and when these deposits should be made.

“Clearer deposit rules can improve the predictability and transparency of contributions to the fund. The removal of PETRONAS as the named primary contributor also signals a broader intention for the fund to function as a natural resource fund, rather than simply as a mechanism for saving and managing petroleum revenues,” Sri Murniati adds, pointing to the requirement for the federal government to deposit at least 0.1% of projected annual revenue, a minimum 2% of annual dividends from PETRONAS as well as a minimum 2% of export duties on depleting resources. The latter is defined as “crude oil, mineral ores, iron ore or any other natural resources which may be susceptible to depletion”.

She, for one, looks forward to seeing how the states will respond to the new KWAN Act 2026, given that it encourages states to contribute but is silent on a formula for doing so. That is perhaps a future enhancement that needs further discussion between the federal and state governments, she reckons, noting that the National Finance Council could be an avenue to work out a specific contribution rate. Discussions are necessary, given that natural resources for each state are different.

It is not immediately certain whether the states were consulted before the KWAN Bill 2026 was tabled in parliament.

It is worth noting that there was already mention of possible contribution by “any state which derives any form of royalty from the exploitation of petroleum or other depleting resources” in the National Trust Fund Act 1988, which allowed “the granting of loans or advances on concessionary terms to the federal government or any state government in Malaysia”.

Nungsari Ahmad Radhi, economist and chairman of Khazanah Research Institute, says there is a need for dialogue to determine how states can be statutorily compelled to contribute mining proceeds. “Take rare earth. States control licensing and can impose charges … in the old days, it was tin mining. There is PETRONAS [set up under the Petroleum Development Act 1974] for oil and gas resources but for other minerals [or even] timber, there are [no such bodies].”

For KWAN to live up to its name as an intergenerational fund ensuring future generations also benefit from the nation’s resource wealth, Nungsari believes any withdrawal should only be for development expenditure and not operating expenditure. And instead of the minister of finance deciding how the fund should be managed, he says KWAN’s strategic portfolio allocation should be decided by its board of directors or investment panel.

“Given that KWAN is a statutory body, let the board or investment panel decide,” he says, adding that the statutory body would need to table its annual performance report to parliament. “That said, this is a good reform, a good Act that builds an intergenerational fund, [which is important for the country considering] exhaustible natural resources,” says Nungsari, who had written in an op-ed piece that KWAN needs to be well-governed to ensure the country is continually blessed by its rich resources instead of falling to the “resource curse”. (See “KWAN, the sovereign wealth fund, must be governed with strict rules”, The Edge Malaysia, July 13, 2026).

Sri Murniati also notes KWAN’s new governance structure and its incorporation as a statutory body with a board and CEO, subjecting it to audit by the National Audit Department and scrutiny by parliament.

“Overall, the new framework is a step in the right direction. However, the Act’s effectiveness will ultimately depend on its implementation. I hope to see the fund grow sustainably over time and become a long-lasting financial reserve for current and future generations in Malaysia, as intended,” she says.

Among other things, there is need to clearly spell out how the new KWAN’s long-term expected real rate of return will be determined.

When The Edge wrote about KWAN in 2019, Norway’s Government Pension Fund Global had just passed the US$1.1 trillion mark. Today, its total assets are above US$2 trillion (RM8.18 trillion), giving the country ample resources to provide a social safety net for its 5.67 million population.

Malaysia, with a much larger population, has a lot of catching up to do, even with the newest Association of Southeast Asian Nations (Asean) member country, Timor-Leste. As it is, Norway’s fund is 387 times larger than KWAN, which is only about one-third the size of Timor-Leste’s Petroleum Fund, which was started 17 years later in 2005.

While the new KWAN Act 2026 requires parliamentary approval for withdrawals above 50% of the long-term expected real rate of return for a particular financial year — whereas the Norway and Timor-Leste governments are allowed to use all of the expected investment returns for a particular year — a key difference here is that petroleum-related revenues first go into the Norway and Timor-Leste funds before going to finance government spending.

Malaysia, however, can already spend up to 98% of PETRONAS dividends as well as export duties from depleting natural resources on top of the possibility of making withdrawals from KWAN, even with the improved rules.

That said, the new KWAN Act is still a step in the right direction, given that Putrajaya could previously spend 100% of PETRONAS dividends, and there was no specific requirement for the federal government to contribute to KWAN. The latter was why PETRONAS was the sole contributor to KWAN since its inception, having put in RM14 billion as at end-2025.

Had the federal government been compelled to contribute 0.1% of its revenue to KWAN since 1988, when the old KWAN was set up, at least RM5.5 billion would have gone into KWAN — incidentally, just above the RM5 billion that Putrajaya withdrew from KWAN to finance vaccine and vaccine-related payments during the Covid-19 pandemic between 2021 and 2023 — even before accounting for investment gains.

Our back-of-the-envelope calculations show that at least RM20 billion to RM30 billion more could have gone into KWAN between 1988 and 2025, had these new contribution rules been in place from day one.

The biggest opportunity loss was on PETRONAS, which had contributed RM1.6 trillion to the federal government between 1974 and 2025, of which RM516 billion was in the last seven years. Had Malaysia set aside just 1% of that half a trillion ringgit, it would have made KWAN at least RM5 billion bigger. Now that the contribution rules are in place, execution needs to be done well to ensure the intended benefits will be accrued from now on.

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