Kuala lumpur: CIMB Investment Bank Bhd anticipates Malaysia's budget deficit to be 3.6 percent of the gross domestic product (GDP) in 2026, with government revenue projected to expand by four percent to RM353.3 billion.

According to BERNAMA News Agency, the increase in revenue is expected to be driven by higher tax collections. This will be supported by the full-year impact of the sales and service tax expansion, e-invoicing, tighter compliance, potential hikes in sin taxes, and the gradual rollout of a carbon tax targeting the iron, steel, and energy sectors. These factors are projected to counterbalance the anticipated decline in oil-related revenues and lower dividends from Petroliam Nasional Bhd, aligning with softer crude prices.

The government's operating expenditure is expected to rise by 3.9 percent to RM348.1 billion in 2026, including Phase 2 of civil service salary adjustments scheduled for January 2026, costing RM8 billion. The Sumbangan Asas Rahmah and Sumbangan Tunai Rahmah cash transfers are also predicted to increase to RM17 billion in 2026, up from RM15 billion in 2025. Recent electricity tariff adjustments are anticipated to contribute to fiscal savings, with RM5.9 billion spent in the first half of 2025.

Development expenditure is forecasted to be RM87 billion in 2026, slightly up from RM86 billion in 2025, demonstrating a continued commitment to growth priorities. Additionally, clarity on the New Investment Incentive Framework, initially planned for the third quarter of 2025, is expected to be part of Budget 2026.

CIMB has revised its GDP growth projection for 2026 to 4.1 percent, down from an earlier estimate of 4.5 percent, to reflect weaker external demand and reduced consumption and capital expenditure.