KUALA LUMPUR, Oct 18 — Malaysia announced today record budget spending of RM421 billion for 2025, with the government boosting salaries and retirement funds for civil servants as it pursues further subsidy and tax reforms to bolster revenue.

The government said it was on track to narrow its fiscal deficit to 3.8 per cent of gross domestic product (GDP) next year, from an estimated 4.3 per cent in 2024.

Since taking office in 2022, Prime Minister Datuk Seri Anwar Ibrahim has launched reforms to trim a hefty subsidy bill and reduce the deficit. The government said it will further improve revenue collection systems, including enforcing a global minimum tax from 2025, and pursuing further subsidy rationalisation.

Revenue is seen rising by 5.5 per cent to RM339.7 billion in 2025 from RM322.1 billion this year, according to fiscal and economic outlook reports released alongside today’s budget.

"Our commitment to prudent debt management and the transition to targeted subsidies are central to fiscal reform, ensuring a sustainable and strong financial position for Malaysia,” Anwar said in the economic outlook report.

Anwar is set to address parliament at 4pm (0800 GMT) when he will disclose more details of the budget.

The 2025 spending, up 3.3 per cent on this year’s RM407.5 billion spending, includes development expenditure of RM86 billion and operating expenditure of RM335 billion.

Operating expenditure, which makes up nearly 80 per cent of the budget, will rise 4.2 per cent from 2024, primarily driven by public service restructuring that will see pay hikes and salary adjustments for 1.6 million government employees, the reports said.

Malaysia has allocated RM52.6 billion for subsidies and social assistance in 2025, down from RM61.4 billion this year.

The government has cut blanket subsidies for diesel, electricity, and chicken, among others, and plans to do the same for the widely used RON95 transport fuel as it shifts to a targeted approach that mainly helps lower-income groups.

State energy firm Petronas, opens new tab will pay the government a dividend of RM32 billion in 2025, unchanged from this year, in anticipation of declining petroleum-related output and revenue.

Economic growth was forecast at 4.5 per cent to 5.5 per cent in 2025. This year’s growth forecast was raised to 4.8 per cent to 5.3 per cent, from 4 per cent to 5 per cent previously, the reports showed.

The government said headline inflation was projected to remain manageable next year at between 2 per cent to 3.5 per cent, up from this year’s revised estimate of 1.5 per cent to 2.5 per cent.

The federal government debt-to-GDP ratio was seen steady around 64 per cent in 2025.

Despite a global easing cycle, the government said Malaysia’s monetary policy was unaffected by the timing and policy path of other central banks and would continue to be guided by domestic considerations.

Bank Negara Malaysia has kept its benchmark interest rate at 3.00 per cent since May 2023, with analysts expecting no changes until at least 2026. — Reuters