2027 Budget: "Balance, discipline and pragmatic" [WATCH]

KUALA LUMPUR: The 2027 Budget strikes a pragmatic balance between fiscal consolidation, economic growth and cost-of-living support, economists say.

However, its success will depend on whether public spending translates into higher household incomes, better jobs and stronger productivity.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid described the budget as pragmatic.

He said the government was seeking to maintain fiscal discipline while supporting the rakyat through targeted assistance and measures to ease financial pressures on households and businesses.

"We can see that cash transfers have been increased, alongside tax cuts for the M40 income group and small and medium enterprises (SMEs).

"Credit guarantees are also part of the budget measures to ensure SMEs continue to have access to financing," he told Business Times.

Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak said the budget struck a reasonable balance between supporting economic growth, easing cost-of-living pressures and managing public finances.

He said targeted assistance and the government's commitment to reducing the fiscal deficit were among its key strengths, although the longer-term impact would depend on the effectiveness of public spending.

"The main weakness to watch is whether spending delivers sufficient productivity gains and higher-quality employment to support long-term growth.

"Ultimately, the success of the budget should be measured not only by its allocation of funds but also by whether it improves incomes, creates better jobs and strengthens the economy's capacity to withstand external shocks," he said.

DEFICIT REDUCTION MUST PRESERVE GROWTH

The federal fiscal deficit is projected to narrow to RM77.5 billion, or 3.3 per cent of gross domestic product (GDP), in 2027 from RM78.5 billion, or 3.6 per cent of GDP, in 2026, marking the sixth consecutive year of deficit reduction.

Total expenditure is projected to increase 3.6 per cent to RM459.8 billion, while development expenditure will rise 2.5 per cent to RM83 billion to support infrastructure, education, healthcare, flood mitigation and affordable housing.

Socio-Economic Research Centre executive director Lee Heng Guie said the government's continued commitment to fiscal discipline without sacrificing social and growth priorities was encouraging amid geopolitical tensions and global economic uncertainty.

He said the budget sought to provide immediate relief while advancing medium-term strategies to strengthen structural competitiveness, accelerate digital adoption and support sustainable economic growth.

However, Lee said Malaysia needed to broaden its revenue base and rationalise operating expenditure to sustain fiscal consolidation while preserving resources for productive investments.

Federal revenue is projected to grow 4.7 per cent to RM380.8 billion in 2027, while the tax-to-GDP ratio averaged 12.1 per cent in 2020-2027, compared with 13.8 per cent in 2010-2019.

Lee said the declining ratio highlighted the need to strengthen revenue collection, adding that the reintroduction of the goods and services tax was worth considering.

DEBT BURDEN CALLS FOR STRONGER REVENUE

Idham said narrowing the fiscal deficit and moderating new borrowing represented progress but would not necessarily lead to a rapid reduction in the overall debt stock as existing borrowings continued to incur interest and require servicing.

He said the government needed to sustain revenue growth, improve spending efficiency and ensure new borrowing financed productive investments capable of generating long-term economic returns.

"Equally important is maintaining a credible fiscal consolidation path without undermining essential social protection or development spending.

"The objective should be to reduce the debt burden relative to the economy while preserving sufficient fiscal space to respond to future economic shocks," Idham said.

PRODUCTIVITY AND JOBS KEY TO LONG-TERM GAINS

Idham said the government should strengthen Malaysia's competitiveness through three priorities: raising productivity and investment quality, reforming the labour market and improving public spending efficiency.

He said the government should accelerate automation, digitalisation, artificial intelligence (AI) adoption and research and development, particularly among SMEs, to help businesses move into higher-value activities.

The labour market and skills ecosystem should also be better aligned with industry needs through technical and vocational education and training, higher education and reskilling programmes, while encouraging better wages and more high-skilled jobs.

He added that outcome-based budgeting, better coordination of government programmes and regular evaluations of incentives were needed to ensure public spending generated measurable gains in investment, employment and productivity.

"These reforms would help Malaysia compete on capabilities and innovation rather than cost alone, while supporting more sustainable and inclusive long-term growth," he said.

Meanwhile, Malaysia's economic growth is projected at between 4.2 and 5.2 per cent in 2027, compared with an estimated 4.8 to 5.3 per cent in 2026, as technology exports and investment activity moderate.

Lee cautioned that household spending remained constrained by rising living costs, food and services inflation, and elevated debt.

He said the government needed to ensure economic growth translated into broader improvements in purchasing power, as reliance on cash assistance and fuel subsidies highlighted persistent financial pressures on households.

"While overall private consumption might look stable, the underlying growth is narrow and a distinct absence of a broad-based consumption acceleration.

This indicates that consumers are not increasing their spending across retail, dining, or entertainment," he said.