Budget 2026 likely to see record high of RM430.3bil federal govt spending, says Kenanga

KUALA LUMPUR: Kenanga Investment Bank Bhd expects federal government spending to hit a record high of RM430.3 billion next year amid growing operating expenditure (OE) and development expenditure (DE).

Ahead of the Budget 2026 presentation next week, the investment bank said in a note today that OE is expected to increase modestly by 2.6  per cent year-on-year to RM342.3 billion in 2026, reflecting the government’s effort to balance fiscal discipline with social support.

Kenanga said DE is projected to expand slightly by 2.3 per cent to RM88.0 billion in 2026, reflecting the government’s commitment to long-term economic transformation, resilience-building, and inclusive development.

“The government is expected to prioritise spending optimisation, focusing on programmes that enhance economic resilience, improve social protection, and support inclusive growth.

“These measures are designed to boost disposable income, encourage employment, and sustain domestic demand, which are critical to sustain growth momentum amid global economic uncertainty,” it said.

Kenanga expects Budget 2026 to deepen Malaysia’s reform agenda under the 13th Malaysia Plan (13MP), advancing the MADANI Economy framework, and building long-term resilience.

Priorities include boosting high-value investments, expanding targeted assistance, and modernising public services, while strategic focus areas include industrial transformation, inclusive social protection, and governance reforms to deliver sustainable, inclusive growth, it added.

The investment bank said the government is anticipated to set the 2026 gross domestic product (GDP) growth target at 5.0 per cent, in line with its in-house forecast of 4.2 per cent.

“Despite global uncertainties, resilience should hold, supported by a sustained domestic demand and a strong services sector, alongside subsidy reforms and structural measures,” it noted.

Meanwhile, Kenanga also projected a 3.7 per cent deficit in 2026, with tax and governance reforms key to sustainability, while revenue growth is expected to ease to 3.6 per cent next year as weaker oil-linked income offsets gains from Sales and Services Tax (SST) expansion and e-invoicing.

“The federal government’s debt-to-GDP ratio is forecast to rise to 66.5 per cent in 2026, up slightly from the projected 66.0 per cent in 2025, in line with moderate economic expansion and continued borrowings

“Debt service charges, as a share of revenue, are projected to climb to 16.8 per cent by 2026, above the 15.0 per cent threshold,” it said. – Bernama