Budget gets the numbers right, but productivity still a challenge

Prime Minister Anwar Ibrahim delivered Malaysia's budget on October 9, citing philosophers and literature while emphasizing that the figures match the rhetoric. The economy grew by 6% in the second quarter, with only Vietnam showing better performance in Southeast Asia. Inflation stands at 2%, and the ringgit has remained stable against the US dollar. IMD ranked Malaysia 15th globally in competitiveness, second in the region to Singapore.

Fuel subsidies will cost RM40 billion this year, contributing to a fiscal deficit of 3.6% of GDP, while federal debt is around 64% of GDP. Demand for AI hardware, supplied by Malaysia's chip-packagers and data centers, drives this growth. The Asian Development Bank predicts the growth rate to slow to 4.7% next year.

The budget focuses on household support, with total outlays reaching RM510 billion, an 11% increase in operating spending and a 2.5% rise in development spending. Cash and grocery aid will increase from RM8 billion to RM16 billion next year. Healthcare workers who complete their training in government hospitals will receive permanent jobs, ending the practice of short-term contracts.

Personal tax relief has been increased for the first time in 17 years, and the minimum wage will rise from RM1,700 to RM2,000 a month starting June 2027.

Small and medium-sized enterprises with sales under RM50 million will receive exemptions and time to adjust. Such firms employ around half of the workforce. Compared to regional standards, this is a balanced approach. Indonesia aims to reduce its deficit to 2.4% of GDP, while Malaysia has successfully transitioned from blanket fuel subsidies to targeted ones, using the savings to aid households.