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

The Madani government in Malaysia is dedicated to gradually reducing the fiscal deficit from 5.5% of gross domestic product (GDP) in 2022 down to 3.3% in 2027. Treasury secretary-general Tan Sri Johan Mahmood Merican emphasized that this reduction in the fiscal deficit demonstrates the government's commitment to fortifying the nation's financial standing, which in turn aids in lowering the ratio of the federal government's debt to the country's GDP.

Currently standing at 65.2% at the close of 2025, the debt-to-GDP ratio is expected to decrease to 64% by the end of this year and further to 63.7% in 2027. This reduction in debt-to-GDP ratio represents a crucial aspect of the government's broader strategy to execute fiscal reforms, ensuring that the level of debt aligns with what is deemed appropriate.

During his address at Deloitte's 52nd TaxMax conference, Johan highlighted that the fiscal expansion policy outlined in Budget 2027 plays a pivotal role in fostering economic growth, maintaining a low unemployment rate, and raising people's income, thereby assisting households in coping with the escalating cost-of-living pressures.

When asked about the re-implementation of the Goods and Services Tax (GST), Johan indicated that the move may not be the most appropriate course of action at present, given the prevailing economic uncertainty and the government's priority to augment people's income amidst the cost-of-living challenge. Regarding the proposal to replace the Sales and Service Tax (SST) with GST at an equivalent rate, Johan clarified that this switch may not necessarily result in increased government revenue.

Instead, it could potentially redistribute part of the tax burden from the business sector, including exporters, to consumers. Johan stressed that the Prime Minister has discussed the GST and SST issue multiple times, and although GST possesses certain advantages, it may not be the optimal solution at the current juncture. He also highlighted that some misunderstandings or misinterpretations have surfaced, with certain parties advocating for the implementation of GST to bolster the country's revenue.

Johan emphasized that those pushing for a higher GST rate may be misguided, and the government does not wish to pursue such a path. At present, Johan noted that SST collections account for 3.2% of GDP, equivalent to the 2017 GST collections ratio.