Budget 2026 Likely to See Record High of RM430.3bil Federal Govt Spending, Says Kenanga

KUALA LUMPUR — Malaysia’s federal government spending is projected to reach a historic high of RM430.3 billion under Budget 2026, according to economic research by Kenanga Investment Bank Bhd. The expected increase underscores the administration’s push to balance economic resilience, fiscal reforms, and social safety nets amid global uncertainty.

Rising Expenditure for Growth and Welfare

Kenanga’s forecast suggests that higher allocations will be directed toward:

• Infrastructure development, particularly transport and renewable energy projects under the National Energy Transition Roadmap (NETR).
• Healthcare and education, with emphasis on digitalisation, inclusivity, and strengthening human capital.
• Subsidy rationalisation, where targeted aid for vulnerable households is expected to replace blanket subsidies.

Fiscal Sustainability Concerns

While record spending is aimed at boosting growth, analysts caution that it may place pressure on Malaysia’s fiscal position. The fiscal deficit is expected to remain between 4.0% and 4.5% of GDP, requiring enhanced revenue generation through taxation reforms, including possible adjustments to the sales and service tax (SST) and renewed discussion on capital gains tax (CGT).

Economic Outlook

Kenanga noted that the expansionary stance reflects the government’s commitment to support domestic demand while mitigating external headwinds such as slowing global trade and volatile commodity prices. If executed effectively, Budget 2026 could provide a platform for Malaysia to accelerate its transition to a high-income, sustainable economy.

Market Implications

Economists believe that increased federal expenditure will benefit sectors including construction, renewable energy, and consumer goods, while also stimulating foreign direct investment (FDI) inflows. However, rating agencies are likely to watch closely for signals of medium-term fiscal consolidation.