18-10-2024 (KUALA LUMPUR) Malaysian Prime Minister Anwar Ibrahim has presented his most expansive annual spending plan to date, aiming to balance fiscal prudence with economic growth as he navigates the country through challenging economic waters. The budget, unveiled on Friday, outlines a strategy of subsidy reduction and accelerated growth to tackle the nation’s fiscal deficit.
In a bold move, the government has announced a 14.4% reduction in subsidies and social assistance, bringing the total down to 52.6 billion ringgit. This marks the second consecutive year of subsidy cuts, with particular focus on fuel and electricity subsidies. The move is part of a broader effort to streamline government expenditure and improve fiscal health.
Anwar, who also serves as the finance minister, projects an optimistic economic outlook for 2025, with growth forecasted between 4.5% and 5.5%. This projection surpasses the current year’s revised forecast range of 4.8% to 5.3% and significantly outpaces the 4.6% expansion predicted by analysts in a Bloomberg survey. The government attributes this anticipated growth to improvements in global trade and robust domestic consumption.
The ambitious plan aims to narrow the budget deficit to 3.8% of gross domestic product, down from 4.3% this year. This fiscal consolidation is crucial for Malaysia to maintain its position as the highest-rated credit in emerging Southeast Asia and to bolster investor confidence as the nation aspires to become a global artificial intelligence hub.
“We have made significant strides in fiscal consolidation,” Anwar stated in the preface of the Economic Outlook 2025 report. “Our commitment to prudent debt management and the transition to targeted subsidies are central to fiscal reform.”
Despite the subsidy cuts, overall government spending is set to increase by 3.3% in 2025, reaching 421 billion ringgit. This rise accounts for higher operational expenditure, including civil servants’ wages and retirement pay. Development spending, however, will remain constant at 86 billion ringgit.
The budget also addresses potential inflationary pressures, with plans to implement a new minimum wage rate and a phased pay increase for civil servants. Inflation is forecasted to average between 2% and 3.5% in 2025, up from the lowered projection of 1.5% to 2.5% for the current year.
Infrastructure development features prominently in the budget, with increased allocations for transport and housing projects. New initiatives include the construction of a bridge and road in Sarawak, expansion of a major highway in Johor, and public housing schemes. The government has also earmarked funds for an “infrastructure facilitation fund” to support the cross-border special economic zone with Singapore and the development of Silver Valley Technology Park 1 in Perak.
As Malaysia grapples with its public debt, which is projected to hover around 64% of GDP by the end of 2025, Anwar’s administration remains committed to reducing this ratio to 60% within a five-year timeframe.
