Business : Budget 2027: Fiscal Deficit Expected To Narrow To 3.3 Pct Of GDP - Apex Securities

Malaysia's fiscal deficit is projected to shrink to RM76 billion, or 3.3 percent of gross domestic product (GDP), in 2027, according to Apex Securities Bhd's research note. This marks a reduction from an estimated 3.5 percent in 2026, with the government staying on course for its medium-term goal of 3.0 percent by 2028. The upcoming Budget 2027 is anticipated to maintain a mildly expansionary yet measured approach, focusing on targeted household support, fiscal discipline, and productivity-enhancing investments.

Revenue is expected to increase by 5.5 percent year-on-year to RM383.3 billion, while operating expenditure will grow by 4.6 percent to RM378.4 billion. The government's gross development expenditure is projected to rise to RM82.4 billion, up from RM80 billion in 2026. This increase in development spending is seen as constructive, but it does not indicate a fresh fiscal stimulus cycle.

The main concern for the market is the speed at which allocations translate into tenders, awards, and project execution, which would benefit contractors with strong execution capabilities. For the construction sector, the focus is on executing existing infrastructure projects rather than pursuing new mega-projects, with transport, highways, water, and East Malaysia connectivity providing a multi-year pipeline.

Household support is expected to increase to around RM17 billion from RM15 billion in 2026, providing a direct buffer for lower- and middle-income households and boosting mass-market consumption. However, the scale of support will be limited by higher fiscal burdens from energy subsidies. Tax policy is not expected to see major new broad-based taxes, with key areas to watch including the integration of certain goods and services tax features into the sales and service tax framework, broader SST exemptions, wider e-invoice adoption, and clearer guidance on the carbon-tax timetable.

Artificial intelligence, semiconductors, and data centre infrastructure are identified as the strongest structural-growth themes, and Budget 2027 should reinforce an investment cycle already underway rather than initiate one. The data centre boom highlights the growing importance of grid capacity, transmission, renewable power, and storage.

Apex Securities expects Budget 2027 to be mildly positive for the FTSE Bursa Malaysia KLCI (FBM KLCI), but not to trigger a broad-based re-rating of the benchmark index. Fiscal consolidation remains the primary policy focus, while the expected rise in development expenditure is relatively modest. The earnings impact is anticipated to be concentrated in specific sectors, with an end-2026 FBM KLCI target of 1,770 set by the stockbroking firm.