Budget gets the numbers right, but productivity still a challenge

Prime Minister Anwar Ibrahim rarely presents a budget without a literary flourish. Tabling his latest on Oct 9, Anwar cited Isaiah Berlin, John Rawls and Homer, among others. He also offered a slogan: “reach for the sky, stay rooted in the earth”.

As with all budgets, the numbers need to match the words. Thankfully, they do in this one.

The statistics

Malaysia’s GDP grew by 6% year-on-year in the second quarter. Among Southeast Asia’s six biggest economies, only Vietnam, at 8.4%, did better. Singapore managed 5.9% and Indonesia 5.3%, while Thailand and the Philippines grew by about 2%.

Inflation is around 2%, while the ringgit has held roughly steady against the US dollar this year. In June, Swiss business school IMD ranked Malaysia the world’s 15th most competitive economy, second in the region to Singapore.

Some of this stability comes at a cost. Fuel subsidies will cost about RM40 billion this year after the war in West Asia lifted oil prices, pushing the fiscal deficit to 3.6% of GDP. Federal debt is around 64% of GDP.

Much of the boom also depends on global demand for AI hardware, which Malaysia’s chip-packagers and data centres supply. The Asian Development Bank expects growth to ease to 4.7% next year.

Budget targets

The budget’s showpiece measures are aimed at households. Total outlays, including investment by state-linked funds, increased to RM510 billion. Operating spending climbed by 11%, while development spending is up by just 2.5%.

Cash and grocery aid, which totalled RM8 billion in 2022, will reach RM16 billion next year. Adults outside the main cash-aid scheme will receive RM100 in grocery credit twice in 2027. Doctors who finish their training in government hospitals are promised permanent jobs, ending years of short contracts.

Personal tax relief has been increased for the first time since 2010, and the minimum wage goes from RM1,700 to RM2,000 a month effective June 2027. Small and medium-sized firms with sales under RM50 million are exempt, to give them time to adjust. Such firms employ about half the workforce.

By regional standards, this is a sensible mix. Indonesia promises to cut its deficit to 2.4% of GDP next year while paying for President Prabowo Subianto’s free-meals programme; Standard Chartered, a bank, forecast 2.9% in August.

Filipinos are watching 7% inflation eat their wages. Malaysia replaced blanket fuel subsidies with targeted ones, recycled the savings into household aid, and has made the change stick.

Room for development

The weak spot is productivity and the pay that should follow it. Employee compensation is just 33.9% of GDP, against a government target of 40% by 2030.

The data-centre boom has been capital-heavy and job-light: 143 projects approved between 2021 and mid-2025, worth RM144 billion, promised 1,429 jobs, roughly RM100 million per job. Three changes might help.

Medical devices offer one. Malaysia exported RM34.5 billion of them last year, but much of the high-end output comes from multinationals, such as Boston Scientific and Dexcom, whose products are designed abroad.

The health ministry could help by weighing clinical outcomes and lifetime cost alongside price, and by trialling promising local designs, giving their makers a first reference customer.

MediAsas, a new insurance plan that pays hospitals by diagnosis, should push private hospitals the same way. The Medical Device Authority (MDA) now works more efficiently and with multiple neighbouring regulators, sparing firms duplicate reviews. Asean-wide reliance, running in both directions, would make a Malaysian approval a passport to nearly 700 million people.

Digital policy is the second change. Electricity and water are now tight enough that the government has been turning away data centres that do not serve AI.

Remaining grid capacity should go to projects that bring workloads, research and skilled jobs, and the incentives attached to MDEC’s Malaysia Digital status could be tied to those outcomes.

MDEC’s RM30 million fund, announced in the budget, will help 4,000 small firms adopt AI and train 5,000 AI professionals, under RM3,500 per firm or trainee. That is a pilot; it deserves scale.

The two strands meet in health. The communications regulator is putting RM1 billion into electronic medical records, and the device regulator already runs an AI sandbox. Together they could make Malaysia Asean’s testbed for clinical AI, provided patients’ data are guarded.

Experiential travel

Live events are the third lever. A local promoter estimated that Malaysia hosted more than 400 concerts in 2024, generating over RM553 million in tourism and related spending, and that the industry could contribute nearly RM1.7 billion this year.

Demand is strong. The indoor Unifi Arena at Bukit Jalil is booked every weekend. When Formula One returned to Sepang this month, Hong Leong Bank reckoned it would add RM1.1 billion to RM1.3 billion of output, with the average visitor spending nearly RM9,000.

Malaysia hosts the SEA Games in September 2027, and the venue upgrades due to finish by March should leave them fit for promoters, broadcasters and hospitality buyers as well as athletes.

The budget offers a rebate for organisers at venues seating 10,000 or more, but waives entertainment duty for concerts and sport only at Stadium Merdeka and Stadium Negara. Extending the waiver to all large venues would help Kuala Lumpur compete with Singapore as Southeast Asia’s entertainment hub.

Anwar’s closing passage invoked Odysseus, who took 10 years to return to Ithaca. Malaysia set out for developed-country status in 1991, with 2020 as its arrival date. Its economy is better equipped for the rest of the voyage than most of its neighbours’. How fast it gets there depends on what each worker produces.

Helmy Haja Mydin chairs the Social & Economic Research Initiative (SERI) and Perbadanan Stadium Malaysia, sits on the boards of MDEC and the MDA and practises as a consultant physician in a private hospital.

The views expressed are those of the writer and do not necessarily reflect those of FMT.

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