Fiscal Policy Committee charts Malaysia’s sustainable economic path amid global shifts

Malaysia’s Fiscal Policy Committee has set a 3.8% deficit target for 2025, while projecting growth of up to 4.8% and mapping changes ahead of Budget 2026.

Malaysia’s Fiscal Policy Committee (FPC), led by Dato’ Seri Anwar Ibrahim, Prime Minister and Finance Minister, convened on 19 August 2025 to review the nation’s economic outlook, assess domestic challenges, and analyse fiscal projections under the Public Finance and Fiscal Responsibility Act 2023 (FRA).

The meeting brought together senior leaders including the Deputy Prime Minister, Minister of Energy Transition and Water Transformation, Finance Minister II (currently also covering the duties of Economy Minister), the Chief Secretary to the Government, Secretary-General of Treasury, Secretary-General of the Economy Ministry, and Bank Negara Malaysia Governor, as well as senior government officials.

Balancing growth with fiscal sustainability

During the session, Dato’ Anwar highlighted the FPC’s critical role in ensuring fiscal sustainability while driving economic growth. He underscored the Government’s focus on policies that balance investments to “raise the ceiling” by transforming the economy, and “raise the floor” by improving the rakyat’s quality of life.

“The MADANI Government remains committed to pursuing fiscal sustainability while ensuring that growth momentum is preserved, particularly in light of current global developments,” he said.

Malaysia’s economy expanded by 4.4% in the first half of 2025, with unemployment easing to a decade-low of 3%. For the year, growth is projected at 4% to 4.8%, supported by strong domestic demand, moderate inflation, and a stable labour market.

At the same time, fiscal consolidation efforts have yielded results. The deficit reduced from 5.5% of GDP in 2022 to 4.1% in 2024. The Government reaffirmed its target of 3.8% for 2025, with plans to bring the deficit down to 3% or below in the medium term, in line with FRA commitments.

Preparing for Budget 2026

The meeting, held in line with the FRA reaffirmed the FPC’s role in shaping fiscal strategies, strengthening governance in public financial management, and keeping Malaysia’s fiscal position sustainable over the medium and long term.

For 2025, consolidation efforts will continue through measures such as broadening the revenue base and optimising expenditure, including the rationalisation of RON95 fuel subsidies. The session also marked an important step in setting the fiscal direction ahead of Budget 2026, which will be tabled on 10 October 2025.

In line with the FRA, the Government is also advancing its Medium-Term Revenue Strategy (MTRS) to expand the revenue base and introduce a more progressive tax system, while aligning with international best practices. Moving forward, focus will be placed on addressing leakages and improving efficiency, including through the phased rollout of the e-invoicing system. These efforts are aimed at building a fairer and more resilient fiscal framework that supports long-term economic growth and the wellbeing of the citizens.

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Lead image / Dato' Anwar Ibrahim's Facebook