Kuala lumpur: The government anticipates a significant reduction in the country's fiscal deficit to 3.5 percent by 2026, edging closer to the medium-term target of 3.0 percent as stipulated in the Public Finance and Fiscal Responsibility Act (FRA) 2023. This projection underscores the government's commitment to enhancing fiscal discipline.
According to BERNAMA News Agency, Finance Minister II Datuk Seri Amir Hamzah Azizan emphasized that fiscal discipline is being gradually implemented to strike a balance between deficit reduction and the expansionary fiscal policies necessary for economic growth and national development. The country's fiscal deficit has already decreased from 6.4 percent in 2021 to 4.1 percent in 2024, with a target of 3.8 percent for 2025, and an expected further reduction to 3.5 percent in 2026, as outlined in Budget 2026.
Datuk Seri Amir Hamzah highlighted that this reduction has been supported by broadening the tax base, including enhancements to the Sales and Services Tax and targeted subsidies, particularly for electricity, diesel, and RON95. He noted that the country's fiscal reforms have been acknowledged by international entities, including the International Monetary Fund (IMF) in their December 2025 report.
He further stated that despite global economic uncertainties, the country's economic growth exceeded expectations, with the Gross Domestic Product growth for 2025 estimated at 4.9 percent, buoyed by a strong fourth-quarter performance. Additionally, trade achieved a historical high, growing by over six percent and reaching RM3 trillion.
The Finance Minister attributed these economic accomplishments to the MADANI Government's comprehensive approach, which includes prudent economic management and efforts to promote business, investment, and trade. Investor confidence and the country's competitiveness have been strengthened, as evidenced by the robust performance of the ringgit and the equity market.
Datuk Seri Amir Hamzah mentioned that the ringgit reached its strongest level in nearly eight years, trading at RM3.92 against the US dollar as of January 28, 2026, signifying market confidence in the government's economic management. The FBM KLCI also hit its highest level in over seven years, reaching 1,771 points on January 27, 2026.
Despite an outflow of foreign funds from the equity market amounting to US$5.2 billion in 2025, the bond market experienced a significant inflow of foreign funds, totaling US$6 billion. This trend indicates that Malaysia remains a stable investment destination, with foreign investments continuing to flow into the bond market, reflecting confidence in the Malaysian economy's stability.
In January 2026, investor sentiment remained positive, with both the equity market and bond market each recording foreign fund inflows exceeding RM1 billion, reinforcing the country's position as a favorable investment hub.