Malaysia targets 3.3pc fiscal deficit in 2027, 3pc by 2028, says Treasury sec-gen

Malaysia plans to lower its fiscal deficit to 3.3 per cent next year and then to 3 per cent by 2028. These targets show a gradual approach rather than an immediate reduction. Fiscal consolidation matters because the government wants to manage public finances carefully and protect investor confidence.

The government is guided by the Fiscal Responsibility Act and its pledges under that law. Treasury secretary-general Johan Mahmood Merican said disciplined and prudent financial management would demonstrate Malaysia’s ability to carry out its plans. The targets therefore serve as both financial goals and signals to investors.

The government is also targeting a 3.6 per cent deficit this year. Reaching 3.3 per cent next year would continue the reduction, while the 2028 goal would bring the figure as low as 3 per cent. Oil-price uncertainty and subsidy needs could affect how these plans are implemented.

A fiscal deficit is the shortfall created when a government’s spending exceeds its revenue during a particular financial year. The gap must be financed, usually through borrowing or by drawing on available funds. A deficit is not the same as total debt, because debt accumulates over time while a deficit measures one year’s imbalance.

For example, if Malaysia collected RM100 billion but spent RM110 billion in a year, it would have a RM10 billion fiscal deficit. The size of that gap matters because repeated deficits can increase financing needs. Reducing the gap is known as fiscal consolidation.

The article reports that Malaysia is targeting a 3.6 per cent deficit this year, 3.3 per cent next year, and 3 per cent by 2028. Johan said this effort supports disciplined financial management and helps maintain investor confidence. The government’s plans must also account for oil-price uncertainty and subsidies.

Malaysia’s fiscal deficit is expected to reach 3.6 per cent this year. The government has set a lower target of 3.3 per cent for next year and plans to bring it down to 3 per cent by 2028. These figures measure the government’s yearly shortfall relative to the size of the economy.

The deficit has already declined substantially. It dropped from 5.5 per cent in 2022 to 3.7 per cent in 2025. That is a reduction of 1.8 percentage points. The government therefore presents the next targets as part of an ongoing fiscal consolidation effort, rather than a new policy direction.

The path is not risk-free. Johan said uncertainty in the Middle East and possible higher oil prices were included in planning for next year. The government expects subsidy allocation to remain around RM40 billion. It may adjust its approach if oil prices or other circumstances change.

Reducing a fiscal deficit can help maintain investor confidence because it shows that the government is controlling spending, managing revenue, and limiting the growth of its financing needs. Investors generally look for evidence that public finances are being handled in a disciplined and prudent way. Confidence can support Malaysia’s economic credibility.

The mechanism is straightforward. Malaysia spends more than it receives when it runs a deficit. A smaller gap means the government needs less additional financing for that year. Johan said fiscal consolidation was a key priority specifically because Malaysia wanted to demonstrate its ability to execute disciplined and prudent financial management.

The government is targeting a deficit of 3.6 per cent this year, 3.3 per cent next year, and 3 per cent by 2028. These targets are supported by the Fiscal Responsibility Act. However, oil prices, Middle East uncertainty, and subsidy costs could complicate implementation.

Oil prices matter to Malaysia’s fiscal planning because changes in energy prices can affect the government’s subsidy bill. When oil prices rise, keeping subsidies in place may require more public money. That increases spending and can make it harder to reduce the fiscal deficit. Middle East uncertainty adds another planning risk.

The key mechanism is adjustment. The government estimates that this year’s subsidy allocation of around RM40 billion will continue next year. Johan said officials would respond to circumstances, as they did this year when oil prices rose higher than expected. This allows spending plans to change when market conditions shift.

The subsidy estimate has been included in next year’s fiscal planning, rather than ignored. Even so, the government must balance support for subsidies with its deficit targets. It is targeting 3.3 per cent next year and 3 per cent by 2028, while remaining prepared to make adjustments if conditions change.

Malaysia’s Public Finance and Fiscal Responsibility Act 2023 provides a framework for responsible management of public finances. In the article, it is presented as the legal guide for the government’s fiscal consolidation efforts. The law matters because it supports clearer commitments to disciplined financial management.

The government’s deficit plans are linked to pledges made under the Act. Johan said Malaysia remained committed to those pledges so it could achieve a fiscal deficit as low as 3 per cent by 2028. The Act therefore connects the government’s broad responsibility for public finances with specific medium-term fiscal goals.

The law does not remove economic uncertainty. Government planning still includes possible higher oil prices and instability in the Middle East. Subsidy allocation is expected to stay around RM40 billion next year, but officials may adjust it according to circumstances. The Act provides the framework while policy decisions respond to changing conditions.

A yearly fiscal deficit measures how much a government’s spending exceeds its revenue during one financial year. Total national debt is different: it is the accumulated amount owed after borrowing over many years. A deficit is a flow measured over time, while debt is a stock measured at a point in time.

For example, if Malaysia has a deficit in one year, it may borrow to cover that shortfall. That borrowing can add to national debt. If the government runs deficits repeatedly, debt may grow, although repayments, economic growth, and other financial changes also affect the total. A deficit can therefore increase debt, but the two figures are not interchangeable.

The article focuses on Malaysia’s yearly deficit targets. It reports 3.6 per cent this year, 3.3 per cent next year, and 3 per cent by 2028. It does not provide a national-debt figure. Its stated aim is fiscal consolidation and responsible public-finance management.