The government’s Medium-Term Fiscal Framework projects national debt peaking at 65.8% of gross domestic product (GDP) in 2026 before gradually declining to 60% by 2030, in line with the Public Finance and Fiscal Responsibility Act target.
However, the bank said projections based on historical averages suggest debt could instead rise to 67.6% by 2030.
“World Bank staff estimates suggest that sustaining a primary surplus of around 1% of GDP during 2026–2028 would be needed to reach the 60% target earlier, pointing to the need for more ambitious fiscal adjustment than in the past decade,” its April 2026 Malaysia Economic Monitor report said.
The government currently runs a fiscal deficit instead of a surplus. The bank noted the government achieved a better-than-estimated fiscal deficit at 3.7% of GDP last year, against its initial target of 3.8%, helped by stronger revenues despite continued spending pressures.
As of September 2025, federal government debt stood at RM1.32 trillion or 65.3% of GDP.
The bank said meeting current and future debt obligations “will require stronger fiscal outcomes than Malaysia has achieved historically”.
It added that rebuilding fiscal capacity will require balanced efforts on “both expenditure restraint and revenue mobilisation”.
“On the expenditure side, fuel subsidy reforms underscore the government’s commitment to enhance spending efficiency, with further efficiency gains achievable through better targeting of beneficiaries under the RON95 subsidy scheme,” it said.
The bank added that strengthening budget credibility remains essential to ensure that spending aligns with approved allocations and that resources are effectively directed toward priorities that support long-term inclusive growth.
On the revenue side, reforms could focus on broadening the tax base, rationalising tax expenditures, and strengthening tax administration, building on measures implemented in recent years.
Total government revenue was revised up to 16.6% of GDP in 2025, supported by increased sales and service tax (SST) collections following recent reforms.
The increase offset the higher-than-budgeted operating expenditure at 16.3% of GDP, as subsidy and social assistance outlays exceeded initial projections, reflecting smaller-than-anticipated savings from the targeted RON95 subsidy rationalisation.