KUALA LUMPUR (Oct 9): Malaysia's fiscal deficit is projected to narrow to 3.3% of gross domestic product (GDP) in 2027, even as the actual shortfall remains elevated at RM77.5 billion.
This annual spending gap — the spending that exceeds goverment revenue and must be covered by borrowing — is down just RM992 million or 1.3% from the revised RM78.5 billion deficit in 2026, according to the Ministry of Finance's (MOF) 2027 Fiscal Outlook and Federal Government Revenue Estimates report.
While the deficit-to-GDP ratio improves by 0.3 percentage points, the gain is largely driven by headline economic expansion rather than a meaningful contraction in the absolute spending gap.
In fact, the projected 2027 shortfall is higher than the RM75.3 billion recorded in 2025, when the shortfall amounted to 3.7% of GDP.
Even so, the 3.3% ratio marks the lowest level since 2017 — when it touched 2.9% — as the government continues to pursue its 3% medium-term target under the Public Finance and Fiscal Responsibility Act 2023.
The 2027 estimates, however, do not factor in the impact of any new fiscal measures under Budget 2027.
"The pace and quality of consolidation will remain calibrated to prevailing economic conditions, with fiscal adjustment anchored by sustainable revenue improvements and expenditure efficiency," the ministry said.
It noted that borrowing needs will be contained through continued fiscal consolidation, while greater private sector participation through public-private partnerships and co-investment arrangements would help ease the burden on state funding for infrastructure projects.
RM40b fuel subsidy bill pushes 2026 deficit off target
Spurred by the prolonged war in West Asia and surging global energy prices, the government revised its fiscal deficit for 2026 upwards to 3.6% of GDP, from the initial 3.5% target.
The 2026 budget was initially premised on GDP growth of 4%-4.5%, with crude oil prices at between US$60 to US$65 per barrel.
However, higher crude oil prices and supply disruptions pushed the national fuel subsidy bill to RM40 billion, from the originally budgeted RM15 billion.
Consequently, operating expenditure for 2026 is now projected tp jot RM363.1 billion — 7.3% above the original allocation — while development expenditure remains unchanged at RM81 billion.
Deficit targeted at 3% over medium term
Under its medium-term fiscal framework, the government aims to guide the deficit down towards 3% of GDP between 2027 and 2029.
The framework projects cumulative federal government revenue of RM1.16 trillion over these three years, against RM1.15 trillion in operating expenditure and RM253 billion in gross development expenditure.
Even with the consolidation, cumulative deficits will total RM232.4 billion over the three-year period, averaging 3.1% of GDP.
These projections assume average annual real GDP growth of 5%, crude oil at US$78 per barrel, and daily domestic production of about 500,000 barrels.
"The overall annual fiscal deficit during the period is projected to decrease, in line with the medium-term consolidation target of 3% of GDP," MOF said.
Achieving that would depend on continued revenue mobilisation, expenditure optimisation and greater value for money in public spending, the ministry added, with private sector financing complementing government investment in strategic development priorities.