BY TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, Sept 12 – Malaysia should use Budget 2027 to make the decisive transition from economic resilience to productive expansion, channelling its stronger growth momentum into infrastructure, artificial intelligence, semiconductors, energy security, human capital and higher-value private investment while preserving fiscal discipline.
That is the central prescription from Shan Saeed, Global Chief Economist at Juwai IQI, who believes Malaysia is entering the next budget cycle from a position of unusual macroeconomic strength – giving policymakers greater room to raise the economy’s productive capacity rather than simply insulate it from external shocks.
In an exclusive interview with TNS News, Shan said Budget 2027 should mark a shift in economic strategy under the 13th Malaysia Plan, but cautioned against interpreting that shift as a licence for unchecked government spending.
“Yes, but I would call it productive structural expansion rather than aggressive fiscal expansion,” Shan said.
Malaysia’s 2027 federal budget is scheduled to be tabled in the Dewan Rakyat on Friday, October 9, 2026, at 4pm. The government’s Pre-Budget Statement positions Budget 2027 – the fifth MADANI Budget and second under the 13th Malaysia Plan around raising the country’s growth ceiling, improving living standards and strengthening governance.
For Shan, however, the larger economic question is whether Malaysia can use the present growth cycle to create something more durable: higher productivity, stronger real incomes and a larger sovereign investment premium.
Malaysia Can Accelerate Without Abandoning Discipline
Malaysia enters the Budget 2027 debate with considerable momentum.
GDP expanded 6.0% year-on-year in the second quarter of 2026, taking first-half growth to 5.7%, compared with 4.5% in the first half of 2025. Manufacturing expanded 7.3%, services grew 5.9%, while exports increased 17% in the second quarter, according to figures cited by Shan.
Against that backdrop, Shan maintains his 5.5%–6.3% GDP growth forecast for 2026 and expects the economy to expand by 5.3%–6.5% in 2027, subject to global financial conditions, energy prices and geopolitical stability.
“Malaysia’s combination of growth resilience, macroeconomic stability and policy credibility increasingly commands an investment premium,” Shan said.
That creates room for a different type of budget.
“Budget 2027 should therefore move from shock absorption toward productive-capacity creation: infrastructure, AI, semiconductors, energy security, logistics, human capital and private investment crowding-in.”
But stronger growth should not be allowed to weaken Malaysia’s fiscal consolidation.
Malaysia’s fiscal deficit declined to 3.7% of GDP in 2025, while the medium-term fiscal architecture remains anchored towards a deficit of 3% or below.
“Fiscal credibility must remain sacrosanct,” Shan said.
“The message should be simple: Malaysia can accelerate without abandoning discipline.”
Give The M40 Cash-Flow Relief, Not Blanket Subsidies
The pressure on middle-income households is likely to be one of Budget 2027’s most closely watched issues.
Shan believes the answer lies in improving household cash flow rather than rebuilding broad subsidy structures.
“The M40 require cash-flow relief rather than another architecture of blanket subsidies,” he said.
He pointed to reductions in personal income-tax rates across several income bands from 2023, which provided approximately 2.4 million taxpayers with up to RM1,300 in additional disposable income.
Budget 2027 should build on that approach, he said, through targeted tax relief covering childcare, education, healthcare and insurance, public transport and commuting expenses, and first-home ownership.
“Tax relief thresholds should increasingly reflect the actual cost structure confronting urban middle-income households,” Shan said.
Housing also deserves particular attention, although he cautioned against measures that simply stimulate another borrowing cycle.
“[Support should come] through mortgage guarantees and continued support for first-time buyers rather than indiscriminate property stimulus,” he said.
The distinction is important because household debt remained elevated at 84.8% of GDP at the end of 2025, although household financial assets were around 2.1 times debt.
“The objective should be to strengthen disposable income without encouraging another cycle of household leverage.”
A Pro-Growth Budget Need Not Be An Inflationary Budget
Another question confronting policymakers is how far fiscal policy can support growth without creating inflationary pressures that eventually force Bank Negara Malaysia to tighten monetary policy.
Shan sees no inevitability of a rate increase heading into 2027.
“Malaysia currently occupies an enviable macroeconomic configuration: strong growth, contained inflation and monetary optionality,” he said.
Headline inflation stood at 1.8% in July, while Bank Negara maintained the Overnight Policy Rate at 2.75% on September 3.
“I therefore would not assume that an interest-rate increase is inevitable. Monetary policy remains data-dependent,” Shan said.
The critical distinction, he said, is what the government spends on.
“Infrastructure, grid capacity, education, AI adoption, healthcare and productivity-enhancing investment enlarge the supply side of the economy. Broad, untargeted consumption stimulus risks doing the opposite by adding demand without raising productive capacity.”
That distinction could prove central to Budget 2027.
“Budget 2027 can consequently be pro-growth without becoming inflationary if expenditure generates a high productivity multiplier and remains consistent with fiscal consolidation,” Shan said.
“Fiscal and monetary policy should complement one another — not compete for control of aggregate demand.”
AI Growth Will Ultimately Be An Energy Question
Malaysia’s rapid rise as a regional data-centre and cloud-computing hub creates perhaps one of the most consequential longer-term choices facing Budget 2027.
For Shan, there should be no artificial choice between expanding the digital economy and managing Malaysia’s energy transition.
“Malaysia should not frame this as AI versus the energy transition. Energy architecture must become an enabler of the AI economy.”
MIDA approved RM144.4 billion in data-centre and cloud-computing investment between 2021 and mid-2025, while TNB had secured 47 data-centre projects representing 6.7GW of planned capacity by August 2025, according to figures cited by Shan.
TNB estimates data-centre electricity demand could approach 13GW by 2030 and exceed 20GW by 2040.
“That is an extraordinary economic opportunity — but also an energy-security challenge,” Shan said.
He believes future budget incentives should increasingly be conditional on energy efficiency, renewable procurement, water efficiency, grid-support technologies and demonstrable local economic value.
Malaysia should simultaneously accelerate solar generation, energy storage, transmission infrastructure and gas flexibility, while eventually evaluating firm low-carbon generation options as part of a diversified energy architecture.
“The winning countries in the AI economy will not simply possess compute,” Shan said.
“They will possess reliable, competitively priced and increasingly low-carbon power behind that compute.”
Malaysia’s RM4.3 Trillion Capital Market Is A Strategic Weapon
Malaysia’s ability to finance its next development phase may also give it an advantage over some of its ASEAN competitors.
Shan describes the country’s capital-market depth as an “underappreciated strategic advantage.”
Malaysia’s capital market reached a record RM4.3 trillion in 2025, equivalent to around 2.1 times nominal GDP. The corporate bond and sukuk market has accounted for at least 85% of capital-market fundraising over the past five years, while the Islamic capital market alone reached approximately RM2.75 trillion in 2025, according to figures cited by Shan.
“That financial depth allows Malaysia to finance energy transition, digital infrastructure, semiconductors, transport and domestic champions without relying exclusively on bank balance sheets or government expenditure,” he said.
Shan wants Budget 2027 to mobilise that ecosystem through green and transition sukuk, infrastructure funds, private capital, venture financing, institutional investors and more efficient pathways connecting innovation with public-market capital.
The Securities Commission expects Malaysia’s capital market to expand towards RM5.8 trillion to RM6.3 trillion by 2030.
For Shan, this represents a crucial differentiator within his “Fabulous Five” framework for Malaysia, Indonesia, Thailand, Vietnam and the Philippines.
“Vietnam brings manufacturing velocity and Indonesia brings enormous scale. Malaysia’s comparative advantage is different: institutional depth, financial sophistication, infrastructure quality and policy credibility.”
Then comes perhaps the sharpest description of Malaysia’s competitive challenge:
“Vietnam moves fast. Indonesia moves big. Malaysia must continue to move smart.”
Budget 2027’s Real Test: The Quality Of Growth
The significance of Budget 2027 therefore extends well beyond the size of government expenditure or the number of incentives announced on October 9.
Malaysia is entering the budget cycle with growth already running strongly, inflation contained and substantial investment flowing into strategic sectors.
The policy challenge is to ensure those favourable conditions produce lasting increases in productive capacity rather than a temporary acceleration in headline GDP.
For Shan, that is the distinction that should define Budget 2027.
“For 2027, my central proposition is straightforward: growth is already visible,” he said.
“Budget 2027 must now convert cyclical momentum into structural productivity, higher real incomes and a stronger sovereign investment premium.”
And his final prescription is equally direct:
“Malaysia does not need growth at any cost; it needs growth of higher quality.”
- TNS NEWS