Anwar set to boost budget spending as election speculation grows

 Prime Minister Anwar Ibrahim is likely to prioritise cash handouts to middle-income groups when he presents the 2027 budget to Parliament on Friday.

Prime Minister Anwar Ibrahim acknowledged that the country’s strong economic performance has yet to translate into an improved sense of economic well-being for many Malaysians.

KUALA LUMPUR:

Prime Minister Anwar Ibrahim is expected to tackle rising living costs in potentially his government’s last budget before he calls a general election.

Anwar, who is also the finance minister, is likely to prioritise cash handouts to middle-income groups when he presents the 2027 spending plan to Parliament on Friday.

He’ll also likely provide more support for the semiconductor and renewable energy sectors, and aim to boost existing revenue streams instead of unveiling new taxes, economists said.

The 79-year-old prime minister, whose Pakatan Harapan coalition has suffered setbacks in a succession of state elections, is trying to court voters and is said to be considering calling nationwide polls in the second half of next year, ahead of the February 2028 deadline.

That “raises the stakes for every measure inside the 2027 budget”, Kenanga Investment Bank economists said in a report that noted a pledge to protect people from the global energy crisis while laying the foundations for a higher-value economy.

“The main aim is to ease cost-of-living pressure on households.”

On Aug 30, Anwar restored subsidised fuel quotas in a move that could benefit 16 million people even as it adds to deficit pressures, and eased a burdensome invoicing regulation for small and medium enterprises. He has also signalled a possible hike in the private sector’s monthly minimum wage from RM1,700 (US$416), with the economy minister identifying higher wages as a key priority.

“Rising political noise ahead of the 2027 budget announcement, taken together with persistent external volatility and elevated oil prices, suggests that fiscal consolidation may prove challenging,” OCBC economist Lavanya Venkateswaran said in a report.

Spending on subsidies and social assistance could push the government’s 2026 fiscal deficit to 3.6% of gross domestic product (GDP), compared with its 3.5% target, she said.

While state spending on fuel subsidies could climb to RM40 billion in 2026, more than double the RM15 billion allocated in this year’s budget, tax revenue should also be strong. That’s thanks to an economy that expanded a faster-than-expected 6% in the second quarter from a year earlier.

For 2027, the government will likely project a narrower fiscal deficit of 3.4% of GDP, according to a Bloomberg survey of economists.

“We expect a mildly expansionary yet fiscally measured budget, balancing growth priorities with fiscal discipline,” UOB Kay Hian economists said in a report. It may include “increased cash handouts and increased tax reliefs for the middle-income group”, they added.

Malaysia’s tech-exporting economy has benefited from the artificial intelligence boom, and UOB Kay Hian says the sector could get further support through tax incentives, grants, preferential financing as well as measures to promote research and talent development. It also forecasts green incentives to help Malaysia reach net zero carbon emissions by 2050.

The central bank expects the economy to expand about 5% this year, at the upper end of its 4%-5% forecast range. Bank Negara Malaysia expects inflation to remain manageable and within its 1.5%-2.5% outlook this year, with consumer prices rising 1.9% in August from a year ago.

Economists surveyed by Bloomberg see next year’s GDP growth at 4.8%, with headline inflation at 2.1% in 2027.

Even as growth remains resilient, Anwar has acknowledged that strong economic performance has yet to translate into an improved sense of economic well-being for many Malaysians. It’s unclear if populist measures will help revive his government’s prospects.

The nation has limited room for additional spending as it seeks to narrow its budget deficit, with fiscal discipline important for maintaining investor confidence, according to Azizul Amiludin, a senior fellow at the Malaysian Institute of Economic Research.

“Many of the challenges associated with the cost of living are structural in nature, and policy interventions typically take time to translate into tangible outcomes,” Azizul said.

“Addressing these challenges therefore requires sustained and longer-term policy measures rather than one-off budgetary support.” - FMT