Stronger Revenue Gives Malaysia Fiscal Room To Cushion External Shocks -- AmBank Economist
KUALA LUMPUR, July 17 (Bernama) -- The government's stronger-than-expected revenue collection in the first five months of 2026 (5M2026) has created additional fiscal space to respond to emerging challenges, including rising global energy prices, said AmBank Group chief economist Firdaos Rosli.
He said revenue performance during the period had surpassed that of the corresponding periods in 2025 and 2024, giving the government greater flexibility in its spending decisions.
"With revenue exceeding expectations, the government has room to channel additional spending where it is most needed.
"In the current environment, with geopolitical tensions in West Asia pushing up energy prices, that fiscal space allows the government to expand fuel subsidies and other support measures to cushion the impact on households and businesses," he said at a media briefing titled '2H2026 Outlook: Resilient Growth, Rising Fractures' here today.
Supporting his assessment, Firdaos said the federal government's total revenue rose 11 per cent to RM138.4 billion in 5M2026 from RM124.8 billion in the corresponding period last year.
He said Budget 2026 projected total revenue of RM343.1 billion, with actual collections already reaching 40.3 per cent of the full-year target in 5M2026, compared with 36.7 per cent during the same period in both 2025 and 2024.
On the expenditure side, total spending increased 9.7 per cent to RM173.9 billion from RM158.6 billion, representing 41.6 per cent of the 2026 budget compared with 37.8 per cent in the same period last year.
The government expects the fiscal deficit to narrow to RM74.6 billion in 2026 from RM79.9 billion in 2025, supported by stronger revenue collection despite higher expenditure.
However, he said, as spending has also increased alongside revenue, the fiscal balance in 5M2026 stood at 47.5 per cent of the full-year budgeted deficit, compared with 42.2 per cent in the corresponding period of 2025.
Firdaos noted that the government's stronger fiscal position had enabled it to roll out measures to cushion households from rising living costs through fuel subsidies while supporting employment and business continuity via labour market resilience programmes and financing guarantees for small and medium enterprises (SMEs).
"In our view, there remains some policy room for additional support if needed, underpinned by the fiscal space rebuilt through sustained fiscal consolidation efforts over the past few years.
"Despite global uncertainties, we commend the government for materially improving its revenue collection without putting a significant drag on growth prospects in 2026," he said.
He added that stronger revenue collection had created the fiscal buffer needed to cushion the economy against unforeseen headwinds.
"This is why we opine that the government is fiscally capable of expanding fuel subsidies when global oil prices spike amid the conflict in West Asia," he said.
On the fiscal outlook, Firdaos said Malaysia's fiscal deficit target of 3.5 per cent of gross domestic product (GDP) in 2026, compared with 3.7 per cent in 2025, remains achievable despite higher fuel subsidies, provided revenue collection exceeds budget expectations in the second half of 2026 (2H2026).
He said the target would also be supported by stronger nominal GDP growth, tighter fiscal enforcement and higher non-tax revenue.
"Having said that, the deficit target could prove ambitious if downside risks materialise, including slower-than-expected economic growth due to external headwinds, commodity-related revenue gains being offset by higher war-related risk premiums, weaker revenue collection in 2H2026 arising from external shocks, and deteriorating external demand affecting Malaysia's export performance," he said.
Firdaos noted that Finance Minister II Datuk Seri Amir Hamzah Azizan had recently indicated that the fiscal deficit could slightly miss the government's 3.5 per cent of GDP target for 2026, although the medium-term fiscal consolidation path towards a 3.0 per cent deficit by 2028 remains intact.
"A temporary and modest deviation from the deficit reduction target is justified, provided there is a clear commitment to return to the fiscal consolidation path once growth conditions improve," he said.
Firdaos said while the government's fiscal consolidation strategy continued to depend on strengthening revenue collection and ensuring expenditure growth remained consistent with its fiscal deficit targets, policymakers should continue prioritising measures that preserve Malaysia's growth momentum as external headwinds intensify.
-- BERNAMA