KUALA LUMPUR (Sept 24): Malaysia’s public finances are under rising pressure from elevated commodity prices and political uncertainty even as economic growth holds up, an economist flagged.

Hitting the government’s budget targets will be tough even after adjustment to development spending and higher oil revenues, according to ANZ’s forecasts. Fiscal deficit, as a percentage of gross domestic product, is likely to come in at 3.7% in 2026 and above the aim of 3.5%.

Sustained commodity prices are also posing a risk to the medium-term target of lowering the fiscal deficit to 3% in 2028, ANZ’s Sanjay Mathur wrote in a report on Thursday.

Prime Minister Datuk Seri Anwar Ibrahim will table Budget 2027 on Oct 9. Brent, the global benchmark for crude oil, has remained above US$100 per barrel and above the government’s original projection for US$60 to US$65 when it unveiled Budget 2026.

While Malaysia is a net oil and gas exporter, higher prices will drag on government finances due to an increase in subsidies for fuel to shield consumers from the price spike. Economic growth, however, has held up in the first six months of 2026.

Anwar is walking on a policy tightrope between keeping the economy on an even keel and fiscal consolidation to close a long-running budget shortfall that stretches back more than two decades.

Greater political uncertainty following Pakatan Harapan’s loss in two state elections could also add to pressure on public finances, ANZ’s Mathur said, noting the decision to boost the quota for subsidised fuel followed the electoral loss in Negeri Sembilan.

“We think the pressure on public finances alongside greater political uncertainty is the single most important weakness in Malaysia’s macro story,” he flagged.