Emoluments, pensions drive higher govt operating spending

KUALA LUMPUR: Higher emoluments, retirement charges and debt servicing are driving government operating expenditure 3.8 per cent higher to RM376.8 billion in 2027.

This is despite the expected fall in subsidies and social assistance in the 2027 Budget, according to Kenanga Research.

Emoluments, the largest component of operating expenditure, are forecast to increase 2.9 per cent to RM111.6 billion next year from RM108.4 billion in 2026.

This will account for 29.6 per cent of the government's total operating spending, Kenanga Research noted.

The firm attributed the increase to annual salary increments and additional healthcare and education staff, including those required for the two-cohort Year One intake.

Retirement charges are expected to climb 4.2 per cent to RM44.6 billion as the number of pensioners and beneficiaries grows.

The government is also moving towards a defined contribution scheme to manage long-term pension liabilities.

Debt service charges are projected to increase 6.5 per cent to RM61 billion, representing 16.2 per cent of operating expenditure. Domestic debt accounts for 98.4 per cent of the total.

Meanwhile, subsidies and social assistance are forecast to fall 2.3 per cent to RM72.7 billion from RM74.5 billion in 2026.

But it will remain the second-largest operating expenditure component, accounting for 19.3 per cent of the total.

Kenanga Research said the decline reflects continued subsidy rationalisation through BUDI95, Budi Diesel and the nationwide Electronic Cooking Oil Subsidy System.

However, spending is expected to remain elevated following upward revisions to the 2026 subsidy requirements amid higher energy prices.

The projected reduction therefore reflects gradual efficiency gains rather than a significant withdrawal of government support.

Kenanga Research said with the Finance Ministry assuming Brent crude oil prices of US$85 per barrel, effective subsidy targeting and tighter controls on leakage will remain crucial to containing fiscal pressures while safeguarding eligible households.