Budget 2027 Expansionary, Focuses On Economic Resilience – RAM Ratings

KUALA LUMPUR, Oct 13 (Bernama) -- Budget 2027 is seen as expansionary, prioritising economic resilience while ensuring continued fiscal consolidation amid elevated external uncertainty, RAM Rating Services Bhd (RAM Ratings).

In a statement today, the credit rating agency said the latest fiscal stance remains broadly prudent, even as fuel subsidies remain a big commitment in 2027.

“At the same time, the budget includes various household support measures, including continued fuel subsidies, increased cash handouts, and greater tax relief measures,” it said.

Government revenue is projected to grow by 4.7 per cent to RM380.8 billion, driven by higher tax revenue, which will comprise 78.0 per cent of total revenue.

The shift in revenue composition, while seemingly marginal, reflects higher Sales and Service Tax (SST) receipts, which are expected to make up 19.2 per cent of total revenue in 2027.

RAM Ratings noted that SST collections have improved progressively in recent years, underpinned by a broader tax base and the phased e-Invoice implementation, which has strengthened tax administration and compliance.

However, it said the increases in various tax reliefs and reductions in income tax rates announced in Budget 2027 would reduce direct tax revenue by about RM2.96 billion if the proposed measures are approved.

The agency also said government revenue would be supported by higher dividends from Petroliam Nasional Bhd (Petronas), which is expected to contribute RM32 billion, an increase of RM5 billion from 2026, and Bank Negara Malaysia, with a dividend of RM7 billion, up RM2 billion from 2026.

Meanwhile, Khazanah Nasional Bhd’s dividend is expected to remain unchanged at RM2 billion.

However, the total revenue-to-gross domestic product (GDP) ratio is expected to decline to 16.4 per cent in 2027, while tax revenue is projected to remain unchanged at 12.8 per cent of GDP.

RAM Ratings said fiscal consolidation remains essential to contain debt pressures.

It said the fiscal deficit is projected to narrow to 3.3 per cent of GDP in 2027, keeping the government on track to meet the medium-term target of three per cent of GDP stipulated under the Public Finance and Fiscal Responsibility Act 2023 (FRA).

Debt stood at 63.1 per cent of GDP at end-June 2026 and is projected to reach 63.7 per cent of GDP by end-2027. While this would be a slight improvement from the estimated 64.0 per cent by end-2026; the ratio would remain above the 60 per cent cap stipulated in the FRA.

“Malaysia’s debt trajectory has yet to see a meaningful improvement to below 60 per cent of GDP, following the sharp increase in government borrowing during the pandemic,” it said.

Debt service charges are projected to also remain sizable at 16.0 per cent of revenue in 2027.

Therefore, it said the continued fiscal consolidation remains important to fortify fiscal space for future readiness to deal with economic shocks.

-- BERNAMA