Malaysia plans record budget spending in 2025 as reforms boost revenue

By Danial Azhar and Ashley Tang

KUALA LUMPUR (Reuters) – Malaysia announced on Friday record budget spending of 421 billion ringgit ($98 billion) for 2025, with the government boosting salaries and retirement funds for civil servants as it pursues further subsidy and tax reforms to bolster revenue.

The government said it was on track to narrow its fiscal deficit to 3.8% of gross domestic product (GDP) next year, from an estimated 4.3% in 2024.

Since taking office in 2022, Prime Minister Anwar Ibrahim has launched reforms to trim a hefty subsidy bill and reduce the deficit. The government said it will further improve revenue collection systems, including enforcing a global minimum tax from 2025, and pursuing further subsidy rationalisation.

Revenue is seen rising by 5.5% to 339.7 billion ringgit in 2025 from 322.1 billion ringgit this year, according to fiscal and economic outlook reports released alongside Friday’s budget.

“Our commitment to prudent debt management and the transition to targeted subsidies are central to fiscal reform, ensuring a sustainable and strong financial position for Malaysia,” Anwar said in the economic outlook report.

Anwar is set to address parliament at 4 p.m. (0800 GMT) when he will disclose more details of the budget.

The 2025 spending, up 3.3% on this year’s 407.5 billion ringgit spending, includes development expenditure of 86 billion ringgit and operating expenditure of 335 billion ringgit.

Operating expenditure, which makes up nearly 80% of the budget, will rise 4.2% from 2024, primarily driven by public service restructuring that will see pay hikes and salary adjustments for 1.6 million government employees, the reports said.

Malaysia has allocated 52.6 billion ringgit for subsidies and social assistance in 2025, down from 61.4 billion this year.

The government has cut blanket subsidies for diesel, electricity, and chicken, among others, and plans to do the same for the widely used RON95 transport fuel as it shifts to a targeted approach that mainly helps lower-income groups.

State energy firm Petronas will pay the government a dividend of 32 billion ringgit in 2025, unchanged from this year, in anticipation of declining petroleum-related output and revenue. 

Economic growth was forecast at 4.5% to 5.5% in 2025. This year’s growth forecast was raised to 4.8% to 5.3%, from 4% to 5% previously, the reports showed. 

The government said headline inflation was projected to remain manageable next year at between 2% to 3.5%, up from this year’s revised estimate of 1.5% to 2.5%.

The federal government debt-to-GDP ratio was seen steady around 64% in 2025.

Despite a global easing cycle, the government said Malaysia’s monetary policy was unaffected by the timing and policy path of other central banks and would continue to be guided by domestic considerations.

Bank Negara Malaysia has kept its benchmark interest rate at 3.00% since May 2023, with analysts expecting no changes until at least 2026. 

($1 = 4.3070 ringgit)