PETALING JAYA: Malaysia could continue providing financial aid without worsening its debt burden, but only if reforms and targeted policies are in place, economists say.
Universiti Malaysia Kelantan entrepreneurship and business professor Datuk Dr Nik Maheran Nik Muhammad noted that while the economy is expanding, the federal budget remains under strain.
Public debt has crossed 60% of GDP, with last year’s fiscal deficit at about 4%.
“The key lies in smarter, targeted spending. For years, billions have gone into blanket subsidies, such as cheap fuel, which benefit high-income earners and even foreigners. That is not sustainable.”
She urged trimming energy and fuel subsidies for the wealthy, corporations and non-citizens, with savings redirected into direct cash transfers for lower and middle-income families.
She said the current 4% deficit is still manageable, provided the government follows a gradual fiscal consolidation plan.
“The danger comes if we keep spending without a roadmap. Once debt crosses 70% of GDP, we are in risky territory,” she warned.
She stressed that, while supporting subsidy rationalisation, aid in food, healthcare and education must remain intact.
“Cutting back in these areas would harm poor families and risk triggering dissatisfaction,” she said.
Nik Maheran proposed expanding the sales tax to luxury goods, raising excise duties on alcohol, tobacco and sugary drinks, and tightening digital tax collection via e-invoicing.
“These could deliver returns within months,” she said, adding that wealth or dividend taxes for the ultra-rich should be explored.
Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak shared similar views, saying financial aid could continue without worsening debt if it is carefully targeted.
He pointed to initiatives such as Budi95, which uses digital ID verification to channel fuel subsidies to lower and middle-income groups, as examples of efficient allocation.
“Such programmes reduce leakage, allowing funds to be reallocated from less impactful areas while still protecting the vulnerable,” he said.
Idham noted that Malaysia’s 4% fiscal deficit remains within a sustainable range, especially with debt at around 60% of GDP.
“As long as deficits are tied to productive investments, such as digital infrastructure or education, they are more defensible than recurring operating costs,” he said.
He also called for subsidy rationalisation, citing fuel subsidies for luxury cars and electricity subsidies for high-use households as areas that should be trimmed.
“Redirecting those savings into cash transfers would shield lower-income groups while improving efficiency,” he said.
But he cautioned against sudden cuts to essential items, such as cooking oil, rice, healthcare and public transport.
“These are highly sensitive. Any reforms must be phased in with proper compensation,” he said.
Idham suggested moderate taxes on luxury goods, high-end property and foreign digital platforms, while exempting local SMEs.
“If done right, such measures could start contributing to the budget within a year.”