Finance minister II Amir Hamzah Azizan says Putrajaya remains committed to achieving its medium-term goal of reducing the fiscal deficit to below 3% of GDP by 2028.
KUALA LUMPUR: Malaysia may miss its fiscal deficit target for 2026 as the conflict involving Iran pushes up fuel subsidy costs, finance minister II Amir Hamzah Azizan said, while stressing that the government’s longer-term fiscal goals remain on track.
“If I end up, at the end of the day, slightly short of the targets, it’s okay,” Amir said in an interview with Bloomberg TV’s Haslinda Amin on Tuesday, underscoring that the government’s immediate priority is to protect vulnerable groups. However, Amir said Putrajaya remains committed to achieving its medium-term goal of reducing the fiscal deficit to below 3% of gross domestic product by 2028.
The deficit stood at 5.5% when Prime Minister Anwar Ibrahim took office in late 2022. Malaysia and other Southeast Asian countries are bracing for a more pronounced impact from the conflict in the third quarter as disruptions to global energy markets increasingly filter through to domestic economies. The effects are already being felt in Malaysia, with inflation accelerating to 1.9% in April, its fastest pace since October 2024. Industries such as aviation and agriculture have also been affected.
The government has cushioned consumers from some of the impact by maintaining fuel subsidies. The retail price of RON95 petrol remains unchanged at RM1.99 per litre, among the lowest in the world.
However, the government has reduced the amount of subsidised RON95 that individuals can purchase since April. Amir revealed that Malaysia’s fuel subsidy bill fell to RM3.5 billion in May from RM7.5 billion in April, which was 10 times higher than pre-conflict levels. Amir also said he was “not worried” about the recent weakening of the ringgit, arguing that the currency’s underlying fundamentals remain strong and that it would perform “better than what it’s showing today”.
The ringgit shifted from being one of Asia’s best-performing currencies to the region’s worst performer in June, amid political uncertainty ahead of key state elections and expectations of higher US interest rates. The currency has weakened by more than 2% this month, although it remains broadly unchanged against the US dollar in 2026 and is still the region’s second-best performer after China’s yuan.
Neighbouring Indonesia has seen its currency decline by more than 7% this year, prompting its central bank to deliver a surprise interest rate hike on Tuesday to support the rupiah. While Malaysian policymakers say fuel supplies are secure through July, efforts are underway to reduce the country’s exposure to the Strait of Hormuz, a critical chokepoint for global energy shipments.
The government and state energy company Petronas have begun securing alternative crude oil sources and monitoring inventories to ensure adequate supplies through the end of the year. Despite the challenges, Amir said Malaysia remains confident of achieving its 2026 growth target of between 4% and 5%, with economic expansion expected to come in near the upper end of that range. Malaysia’s GDP grew 5.4% year-on-year in the first quarter.
However, the pace of expansion moderated throughout the quarter, with monthly growth easing from 6.8% in January to 4.1% in March. Nevertheless, Malaysia entered the current period of global uncertainty from a position of relative strength. Economic growth has outpaced that of most Southeast Asian peers over the past year, supported by robust consumer spending, rising investment and strong global demand for AI-related electronics and services.
As an energy-producing nation, Malaysia is also less dependent on oil and gas imports than regional neighbours such as the Philippines, providing an important buffer against supply disruptions and rising energy prices linked to the conflict.
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