The government expects the economy to expand 4% to 4.5% next year, from the projected 4% to 4.8% in 2025
[KUALA LUMPUR] The Malaysian ringgit is set to extend its recent gains as strong domestic spending and the government’s fiscal prudence cushion the blow from US tariffs, Second Finance Minister Amir Hamzah Azizan said.
The currency may strengthen to “just below” RM4 versus the US dollar in 12 months, Amir said on Sunday (Oct 12). That would represent a more than 5 per cent gain that takes the currency to its strongest closing level since 2018.
“The ringgit is still resilient because the fundamentals are still strong,” said Amir, who also oversees the economy ministry. Even if the US Federal Reserve were to slow its pace of easing, “the ringgit still has a lot of wind behind it to be able to push ahead along the way”.
Malaysia’s currency has appreciated nearly 6 per cent this year, making it the best performer in South-east Asia. Policies including wage hikes for civil servants, and a high employment rate are boosting domestic consumption and supporting growth, Amir said.
The government is putting “money in the hands of the people” and small and medium enterprises, said Amir, who previously helmed the Employees Provident Fund, the country’s biggest pension fund.
The government expects the economy to expand 4 to 4.5 per cent next year, from a projected expansion of 4 to 4.8 per cent in 2025. An advance estimate later this week will probably show that growth slowed to 4.2 per cent in the third quarter, from 4.4 per cent in the previous three months, according to analysts’ median forecast.
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Prime Minister Anwar Ibrahim on Friday proposed a higher expenditure plan of RM470 billion (S$145 billion) for next year that includes spending by state-linked firms. The budget seeks to reconcile falling oil revenue and slowing growth with the government’s commitment to reduce the deficit to 3.5 per cent of gross domestic product in 2026, from 3.8 per cent this year.
Petroleum-related revenue has roughly halved as a percentage of state income since 2009.
Anwar, who also doubles as finance minister, did not introduce new subsidy cuts or taxes in the budget. Instead, he announced higher duties on cigarettes and alcohol from November, and confirmed plans to introduce a carbon tax on iron, steel and energy industries next year.
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Malaysia would prioritise fostering growth in the semiconductor, energy and digital sectors.
Efforts to cut subsidies and tax measures will help the government reduce dependence on oil and gas as an income source, Amir said. These include a recent expansion of the sales and services tax, and the adoption of digitalisation through e-invoicing, leading to improved tax compliance.
The budget for 2026 lacks substantial reforms to diversify and deepen the tax base that would safeguard against future economic headwinds, according to the Institute for Democracy and Economic Affairs (Ideas).
Still, efforts to improve tax compliance and curb leakages are commendable, the think tank known as Ideas said on Sunday.
With Petronas’ proposed dividend of RM20 billion for next year at just half of what it was in 2023, overall revenue growth is shrinking relative to GDP, Ideas said.
“Budget 2026 manages immediate pressures, but lasting progress depends on the government’s ability to turn fiscal restraint into reform,” it said. “Expanding the revenue base, improving spending efficiency, and strengthening institutions must take priority to ensure Malaysia’s stability evolves into sustainable growth.”
The debt position also remains elevated, leaving little fiscal buffer against future shocks, according to the think tank. The federal government’s debt-to-GDP ratio stood at 64.7 per cent as at the end of June.
One potential source of revenue the government is studying is rare earths. Malaysia has signalled its ambitions in rare earths mining and processing to tap burgeoning demand for the minerals that power electronic devices, electric vehicles and green technologies such as lithium batteries.
Sovereign wealth fund Khazanah Nasional will partner with global firms in downstream rare earth processing, Anwar said on Friday.
Amir said in the interview that the government is currently conducting detailed mapping to understand where its reserves sit and what constraints exist.
“We are still in very early days of actually understanding how to build this leg, and we are in conversations with certain governments to understand where a strategic alliance or strategic partnership can make sense,” he said.
Some of the country’s reserves are found in the states of Terengganu, Kelantan and Kedah, which are controlled by the opposition. BLOOMBERG
