Accra:The 2027 budget is viewed as expansionary, focusing on economic resilience while maintaining fiscal consolidation amid high external uncertainty, according to RAM Rating Services Bhd (RAM Ratings).

According to BERNAMA News Agency, RAM Ratings highlighted that the fiscal approach remains broadly prudent, despite the significant commitment to fuel subsidies in 2027. The budget features various household support measures, including ongoing fuel subsidies, increased cash handouts, and enhanced tax relief measures.

Government revenue is forecasted to increase by 4.7 percent to RM380.8 billion, driven by higher tax revenues, which will account for 78 percent of total revenue. This shift in revenue composition, although minor, reflects increased Sales and Service Tax (SST) receipts, projected to comprise 19.2 percent of total revenue in 2027. SST collections have improved due to a broader tax base and the phased implementation of e-Invoicing, which has strengthened tax administration and compliance.

However, the proposed increases in various tax reliefs and reductions in income tax rates could reduce direct tax revenue by approximately RM2.96 billion if approved. Higher dividends from Petroliam Nasional Bhd (Petronas) and Bank Negara Malaysia are expected to support government revenue, with contributions rising to RM32 billion and RM7 billion respectively. Meanwhile, Khazanah Nasional Bhd's dividend is expected to stay at RM2 billion.

Despite these positive revenue projections, the total revenue-to-GDP ratio is anticipated to fall to 16.4 percent in 2027, with tax revenue remaining constant at 12.8 percent of GDP. Fiscal consolidation is crucial to manage debt pressures, with the fiscal deficit expected to decrease to 3.3 percent of GDP in 2027, aligning with the medium-term target of three percent of GDP set by the Public Finance and Fiscal Responsibility Act 2023 (FRA).

Debt levels, which were 63.1 percent of GDP at the end of June 2026, are expected to increase slightly to 63.7 percent by the end of 2027, still above the 60 percent cap stipulated in the FRA. Debt service charges are also projected to remain significant at 16 percent of revenue in 2027. The continued focus on fiscal consolidation is deemed vital for strengthening fiscal capacity to address future economic challenges.