This article first appeared in The Edge Malaysia Weekly on August 24, 2026 - August 30, 2026

THE stage is set for Prime Minister Datuk Seri Anwar Ibrahim’s tabling of his fifth Madani budget in less than seven weeks on Oct 9, even as the guessing game continues on whether fraying ties within his unity government will be put to the test when Budget 2027 is up for vote.

Titled “Reaching for the skies, while anchored on our values”, the 17-page pre-budget statement dated Aug 18, which outlines 10 focus areas for Budget 2027, highlights improvements in the country’s growth and investment pool. It also stresses that “fiscal discipline has been restored through choices that were neither easy nor ornamental”, while ensuring “the overwhelming majority of Malaysians have not lost out”.

The RM15.5 billion annual savings from the floating of chicken and egg prices and the targeting of electricity, diesel and RON95 petrol subsidies is “helping Malaysia absorb a fuel subsidy bill that could reach RM40 billion this year as the conflict in West Asia drives energy prices higher”, the statement by the Ministry of Finance reads, recounting how the country’s fiscal deficit narrowed from 6.4% in 2021 to 3.7% in 2025 and new annual federal government borrowings gradually fell from RM100 billion in 2021 and 2022 to RM75.6 billion in 2025.

“Cash assistance for the people has reached a historic high”, it added, noting that the 2026 allocation for Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) of RM15 billion is 2.5 times more than the RM6 billion under Bantuan Rakyat 1Malaysia (BR1M) in 2018.

Those expecting an election-friendly Budget may well hear “good news” by the end of this week. Anwar said last Thursday that he would make one “important announcement for the country” on the eve of National Day, another on Malaysia Day (Sept 16), and in early October when tabling Budget 2027. That was in reply to a student’s question on the government’s efforts to safeguard the welfare and financial security of youths in the gig economy during a “Temu (Meet) Anwar” session, Bernama reported.

“We expect the coming Budget to be friendly and expansionary. In view of a higher cost of living, we are watching out for potentially higher cash assistance and allocations for fuel subsidies,” says UOB Bank Malaysia senior economist Julia Goh, who thinks there is “a high chance” that the official 2026 gross domestic growth (GDP) forecast range of 4% to 5% will be raised to account for stronger-than-expected performance in the first half of the year and robust exports.

She also sees “potentially higher PETRONAS dividends” in view of higher oil prices and a “slightly lower fiscal deficit for 2027”, with Putrajaya “expected to remain committed to fiscal sustainability and consolidation”.

“Amid continued calls from businesses for a review of the tax measures, some recalibration may be warranted to improve cash flows and investment capacity. This could support higher business spending, stronger wage growth, and greater investment in human capital development,” Goh adds.

Firdaos Rosli, chief economist at AmBank Group, would not be surprised if Malaysia’s economy grows faster than his forecast of 4.8% this year. “There is now a credible case for lifting it above 5%, although policymakers may retain a degree of conservatism given external risks,” he says.

“Budget 2027 will be formulated at a more delicate stage of the present political cycle, where economic priorities and political realities need to be balanced carefully. While long-term reforms remain important, my immediate focus is whether the Budget can preserve Malaysia’s growth momentum amid a weaker global backdrop.”

Firdaos notes that the pre-budget statement points to priorities that “broadly address Malaysia’s key challenges, namely cost-of-living pressures, productivity growth, fiscal sustainability and economic transformation”.

Nazmi Idrus, head of economics research at CGS International Securities, who expects Malaysia’s economy to grow as much as 5.5% this year after lifting forecasts at least two times, is more sanguine. He sees “a good chance” of Putrajaya revising its 2026 GDP forecast higher and for the upper bound to include his estimate.

“The growth momentum that we currently see seems unlikely to abate, in our view, which makes the year’s growth likely to surpass official estimates. However, I have a sense that the MOF (Ministry of Finance) may remain conservative for Budget 2027, likely keeping its midpoint growth target at 5% for 2026,” he says.

Describing the 2027 pre-budget statement as “the most detailed so far and providing a sneak peek to the kind of policies that the government is likely to pursue”, Nazmi reckons that the statement “contains no surprises, in our view, addressing common issues”.

He, for one, thinks that “now is not a good time to introduce new taxes that could potentially hurt the consumer base”.

“It is understood that at the current late stage, the government should be more inclined to ensure existing reforms run smoothly rather than introducing new ones,” Nazmi adds, noting that the current focus “should be more on higher wages and productivity growth”.

Commenting on the MOF directive to study how certain elements of the goods and services tax (GST) can be incorporated into the current expanded sales and service tax (SST) regime to create a more progressive tax system, Nazmi reckons that “any new reforms to the GST/SST should be done under a new electoral mandate”.

That said, for Budget 2027, he is looking out for “new taxes that are progressive” — those that are capital-based or wealth-based and “remain low” — on top of “election goodies” as well as for whether fiscal deficit can fall below 3% of GDP.

Firdaos says the government “appears to be exploring whether selected GST operational features can improve SST efficiency, particularly by reducing tax cascading and strengthening revenue collection”, rather than suggesting a reinstatement of the GST system.

“We must be clear that GST and SST are two distinct consumption tax systems. Even if GST features are adopted into SST, the system would remain fundamentally SST-based unless a full value-added tax framework is introduced,” he says, adding that any enhancement to SST “must consider the potential increase in compliance cost”.

“Businesses are already facing rising pressure from labour costs, utilities, logistics and regulatory requirements. The increasing producer price index (PPI) of 9.2% in June supports this notion,” Firdaos notes.

For Budget 2027, he is watching out for temporary employment-retention incentives for small and medium enterprises (SMEs), tax incentives for automation and digitalisation, grants for workforce upskilling and reskilling, simplification of compliance and regulatory requirements, and easier access to financing for viable SMEs.

Nazmi is unfazed by speculation that Budget 2027 may meet the fate of Budget 2023 — which Anwar tabled in February 2023 to replace that tabled in October 2022 — deeming it a “non-concern” from the macro perspective.

Firdaos also expects policy continuity. “The political direction is much clearer now than in 2023. There was a lot of second-guessing during Budget 2023 but today, the political and policy environment are much clearer. While the government pushes for continuous improvements to its reform agenda, policy fatigue is real, where the rakyat and business cannot keep up with the continuous changes in policies.”

Others concur. “Would it materially change the policy direction? I don’t think so. There will likely be some policy continuity. We have seen back in 2023 [that] certain things are kept like the cash handouts, focus for Sabah/Sarawak, mega projects, subsidies, fiscal prudence and the like,” another observer says.

Expectations are that the newly passed National Trust Fund (KWAN) Bill 2026 — which introduces mandatory contributions from the federal government and withdrawal limits to ensure the nation’s finite resource wealth is grown and preserved for future generations — will feature in Budget 2027, even though Anwar has not said when the new KWAN is expected to be implemented. The new rules ensure that Petroliam Nasional Bhd (PETRONAS) will not be KWAN’s sole contributor.

Deputy Finance Minister Liew Chin Tong told Parliament on July 29 that constant annual inflows — currently estimated at about RM800 million — plus accumulated investment returns are expected to double KWAN’s net assets in about 10 years.

Should KWAN feature in Budget 2027, Firdaos expects Putrajaya to “replenish funds” in KWAN rather than withdraw from it, “given that the country is not in a crisis”.

To be sure, Anwar has said the government should be allowed to serve its mandate. Unless dissolved sooner, its current five-year term only expires in December 2027, after which a general election must be held within 60 days. That means there might still be a tabling of a sixth Madani Budget next October, which makes Budget 2027 all the more important for the current administration. As the next general election draws closer, politicians will be more inclined to give cash rather than ask voters to pay more. Yet, fiscal reforms matter because there has to be a source of money. Whoever helms Putrajaya will need to contend with recurring healthcare and social security expenditure that rises as the population ages.

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