A historic budget amount of RM470 billion ($111.4 billon) has been proposed by Malaysian Prime Minister Anwar Ibrahim for his nation in the year 2026, which is by far the biggest allocation in Malaysian history, exceeding even the allocation of RM452 billion for 2025, as earlier set by his administration for the prior year, admittedly at a time of immense political sensitivity before elections that promise to materialize in the near future.
Record spending targets infrastructure development and social programs
The huge appropriation of funds also encompasses usual operating as well as development costs amounting to RM419.2 billion, taking into account other items to achieve the historical figure of RM470 billion. Operating costs amount to RM338.2 billion, which encompasses current governmental expenditure, including payment of civil servants’ salaries as well as pensions, apart from RM81 billion that goes to development costs, resulting in the creation of infrastructure, an amount higher than what was projected for 2025 at RM412.1 billion.
The budget takes into account provisions for investments by government-related investment companies (RM30 billion), public-private investments (RM10 billion), as well as investments by statutory agencies and companies in the finance ministry (RM10.8 billion). These factors account for the significant increase from normal budget figures to a historic high as announced in the Parliament. The projected receipts also register an increase of 2.7 percent to RM343.1 billion, of which RM270.4 billion is from tax revenue.
Key budget allocations breakdown:
- Operating expenditure: RM338.2 billion for daily government operations
- Development expenditure: RM81 billion for infrastructure and long-term assets
- Government-linked investments: RM30 billion for strategic economic initiatives
- Public-private partnerships: RM10 billion for collaborative development projects
Borneo states receive unprecedented federal development funding increases
Anwar said that Sabah and Sarawak shall get the “highest federal allocations” for development, as indicated in the spirit of the Malaysia Agreement 1963, which views both as equal partners in this federation of states. The development allocation for Sabah is set to soar to RM6.9 billion from RM4.4 billion in 2022, including an allocation of RM6 billion, up from RM2.9 billion in 2022 for Sarawak. The special grant for both of them also doubles to RM600 million, up from RM300 million in 2023.
The total for infrastructure development in both states of Borneo, including projects such as the Trans-Borneo Highway and Sarawak to Sabah Link Road, is estimated at RM48bn in total costs. Even after completing the full regulation of electricity in Sabah in 2019, the federal administration is to pour in RM1.2bn to provide a constant supply in the state. From this year onwards, RM1bn is earmarked annually for water infrastructure development projects in Sabah.
Fiscal discipline was maintained despite expansive spending commitments
The government is projecting a lowering of fiscal deficit to 3.5 percent of GDP in the coming year, down from an estimated 3.8 percent in the current year, reflecting prudent management of finances to support more expenditure. Growth of the economy is projected to range between 4 to 4.5 percent in 2026, accompanied by a moderate inflation level of between 1.3 to 2.0 percent. The taxation of individual income is projected to grow by 9.4 percent to RM49.1 billion.
“Ordinarily, when additional expenditure is needed for infrastructure and aid for the people, additional taxes would be imposed. But the government has chosen to improve governance, including the targeting of subsidies without adding to the burden of the people.”
The historic budget passed in Malaysia is a result of the balancing act of the Malaysian government to prepare for national elections, as well as following prudent fiscal management to ensure a stable economy in the future. The unprecedented level of expenditure in this budget manifests Anwar’s dedication to responding to the needs for infrastructure development as well as containing costs of living, which also ensures that economic development is maintained at a suitable level.
