Malaysia’s fiscal reforms set to lower federal debt ratio to 63.7pc by 2027, says Treasury sec-gen

KUALA LUMPUR, Nov 12 — The Madani government is dedicated to progressively cutting the fiscal deficit from 5.5% of gross domestic product (GDP) in 2022 to 3.3% in 2027, according to Treasury Secretary-General Tan Sri Johan Mahmood Merican. This reduction in the fiscal deficit demonstrates the government's dedication to enhancing the nation's financial standing, thereby contributing to a lower ratio of the federal government's debt to GDP.

Johan stated that the ratio of the federal government's debt to GDP, which stood at 65.2% at the end of 2025, is expected to decrease to 64% by the end of this year and further to 63.7% in 2027. This decline in the debt-to-GDP ratio signifies the government's commitment to implementing fiscal reforms to maintain an appropriate level of debt, as reported at Deloitte's 52nd TaxMax conference.

Johan emphasized that the fiscal expansion policy outlined in the 2027 Budget is crucial for fostering economic growth, maintaining a low unemployment rate, and raising people's income to help households cope with the rising cost of living. Regarding the reintroduction of the Goods and Services Tax (GST), Johan suggested that it may not be the most appropriate course of action at present, considering the prevailing economic uncertainty and the government's primary focus on increasing people's income amidst the cost-of-living challenge.

The Prime Minister has previously expressed views on both GST and the Sales and Service Tax (SST), but Johan clarified that GST may not be the optimal choice at this juncture, as it could potentially shift part of the tax burden from businesses, particularly exporters, to consumers. Johan stressed that the Prime Minister has emphasized the importance of increasing people's income, which includes raising the minimum wage.

As for the proposal to replace SST with GST at an equivalent rate, Johan noted that this shift might not lead to an increase in government revenue, but rather may redistribute the tax burden. He also pointed out that some individuals have suggested implementing GST to boost revenue, but this proposal would require a higher GST rate, which the government currently does not favor.

Currently, SST collections account for 3.2% of GDP, equivalent to the GST collections in 2017, as reported by Bernama.