PETALING JAYA: Malaysia’s projected RM15.5 billion in annual savings from targeted subsidies under Budget 2026 are expected to bolster the nation’s fiscal position by narrowing the deficit and reducing reliance on new borrowings.
Economist Dr Mohamad Idham Md Razak said the move directly supports a projected fiscal deficit of 3.5% of gross domestic product (GDP) next year while easing dependence on debt issuance.
“These savings do not come from austerity or tax hikes but from improved governance, anti-corruption enforcement, and smarter allocation, making them fiscally sustainable and politically credible,” he told theSun.
Mohamad Idham added that RM15.5 billion in savings is substantial enough to create tangible impact when strategically deployed, funding key initiatives such as RM1 billion for Ikhtiar Madani Untuk Rakyat, RM15 billion for Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah, alongside rural infrastructure and digital public service improvements in 2026.
“When coupled with GLIC investments of RM30 billion and private-sector leverage, these savings amplify public impact without increasing debt, proving that fiscal discipline and social progress can go hand in hand,” he said.
He emphasised that the savings are designed for long-term stabilisation rather than short-term relief.
By redirecting funds from blanket subsidies, which often benefit wealthier households and foreign entities, towards targeted welfare schemes as well as high-impact public investment in rural infrastructure, TVET and digitalisation, Mohamad Idham said the reforms embed structural efficiency into the Budget.
“This shift supports Malaysia’s transition toward a more resilient, inclusive and productivity-driven economy aligned with the 13th Malaysia Plan and Madani principles.”
He acknowledged concerns that the M40 group, particularly those just above eligibility thresholds, could feel squeezed by higher fuel or food costs without direct support.
“However, the government has mitigated this by maintaining price controls on essentials such as RON95 at RM1.99 via Budi95, expanding Sumbangan Asas Rahmah to nine million recipients – including some M40 households – and ensuring 85% of electricity users see no tariff increase.
Continuous refinement of Sumbangan Tunai Rahmah databases and dynamic eligibility criteria can further reduce exclusion errors.”
Mohamad Idham added that removing blanket subsidies is necessary amid global fiscal pressures, climate imperatives and the need for equitable resource allocation.
“Blanket subsidies are fiscally inefficient, environmentally unsustainable and socially regressive. These reforms demonstrate mature economic stewardship, balancing affordability for the vulnerable with market realism.
“Floating prices for chicken, eggs and diesel improve market efficiency by letting supply and demand signals function naturally, discouraging overconsumption, reducing smuggling and black-market arbitrage, and incentivising domestic production and logistics innovation.
“For instance, RM1 billion in savings from chicken and egg subsidy rationalisation has been reinvested in strengthening local supply chains, enhancing food security rather than distorting it.”
He added that short-term upward pressure on consumer prices and logistics costs is possible but the government has proactively cushioned the effects.
Diesel subsidies remain for public transport, fishermen and small farmers, while infrastructure upgrades benefit logistics operators. Agri-tech grants and stockpiling also bolster food supply chains, helping to reduce long-term costs.