Anwar Budget Targets Cost of Living and AI Before Malaysia Election

Malaysian Prime Minister Anwar Ibrahim hiked the minimum wage, outlined tax relief for the middle class and pledged to ease cost-of-living pressures in his 2027 budget, potentially the last before he calls a general election.

The government raised its growth forecast for 2026 to 4.8%-5.3% from 4%-5%, as resilient domestic demand and surging exports offset a challenging external environment, according to economic and fiscal outlook reports released as Anwar started his budget speech on Friday.

The minimum monthly wage will also be increased to 2,000 ringgit ($490) from 1,700 ringgit starting June next year, he said.

“The question is not simply how large an economy we want to build, but whether that growth creates opportunities for families to build up savings, for workers to earn more dignified wages, and for small businesses to continue growing,” Anwar said in his speech.

The 79-year-old premier, whose Pakatan Harapan coalition has suffered setbacks in a succession of state elections, is trying to both court voters while delivering fast growth and limiting deficits. He is said to be considering calling nationwide polls in the second half of next year, ahead of the February 2028 deadline.

Tech exports and investment have spurred tax revenue that should bring the budget deficit to 3.6% of gross domestic product this year. That is close to the original 3.5% target, despite a surge in spending linked to fuel subsidies and social assistance.

Anwar, who is also the finance minister, plans to narrow the deficit to 3.3% of GDP next year and remains committed to a medium-term fiscal target of 3% or lower by 2028.

About half an hour into his speech, the ringgit was up 0.2% versus the dollar at 4.086, holding gains. Malaysia’s 10-year yield was little changed at 3.96%.

Palm oil futures in Kuala Lumpur dipped to trade at 4,657 ringgit, after rising 2% earlier Friday. The higher minimum wage will raise costs for Malaysia’s plantation companies, squeezing margins in the labor-intensive industry, where Malaysia is the world’s second-largest producer.

The government forecasts 2027 economic growth of 4.2%-5.2%, supported by sustained domestic demand, a favorable labor market, continued income growth and firm investment activity, according to the economic reports.

It plans to spend 459.8 billion ringgit ($112.5 billion) in 2027. That’s 3.6% higher than in 2026, and almost 10% more than the original spending projection of 419.2 billion ringgit announced last year.

The blowout is a result of Malaysia’s use of subsidies to maintain some of the world’s lowest fuel prices, despite the Iran war’s impact on global energy markets.

The government is spending around 74.5 billion ringgit this year on subsidies and social assistance, 35% more than initially projected due to costlier fuel. The allocation for next year is 72.7 billion ringgit. There will be 16 billion ringgit in cash aid, up from 15 billion ringgit this year.

Malaysia’s status as a net energy exporter due to its reserves of oil and natural gas has cushioned its economy even as neighbors like Thailand and the Philippines struggle with the surging cost of imports.

Dividends from national oil and gas company Petroliam Nasional Bhd., or Petronas, a key revenue stream for the government, are expected to rise to 32 billion ringgit next year from 27 billion ringgit in 2026.

Read more: Petronas Boosts Malaysia Dividends Further as Oil Prices Surge

Overall government revenue is meanwhile expected to increase 4.7% to 380.8 billion ringgit in 2027, from 363.6 billion ringgit this year, as steady economic activity and stronger compliance boosts tax collection.

Some 37.7 billion ringgit will be earmarked for the economic sector that includes transport, environment and trade. Gross exports are forecast to increase by 3% in 2027, coming off a robust 31% estimated this year, with continued demand seen for artificial intelligence-related products and semiconductors.

“Malaysia must move decisively towards higher-value manufacturing, accelerate the energy transition and strengthen its capabilities in artificial intelligence, robotics and other emerging technologies,” Anwar wrote in the Economic Outlook report.

Read More: Malaysia Builds a New ‘Silicon Island’ to House Its AI Ambitions

The past two years have seen Malaysia and its neighbors buffeted by headwinds from Trump’s tariffs to disruptions caused by the Iran war, and Anwar warned that while the country will enter 2027 from a position of strength, risks remain. Global policymakers have also started airing caution around the sustainability of the AI boom, which has been the key driver of Asia’s economic fortunes this year, including Malaysia’s.

“Geopolitical fragmentation, climate risks and rapid technological change will continue to reshape the global economic landscape,” Anwar said in the report. “Malaysia must therefore remain agile, strengthen its resilience and pursue reform with clarity and purpose.”