Malaysia’s Net Borrowings To Ease In 2026 As Fiscal Consolidation Deepens - CIMB

KUALA LUMPUR, Oct 11 (Bernama) -- Malaysia’s net borrowings are expected to decline slightly in 2026 as further fiscal consolidation under the government’s medium-term fiscal strategy reduces the deficit to RM74.6 billion (2025: -RM76.7 billion), CIMB Investment Bank Bhd said.

It noted that the statutory Federal Government debt stood at 63.5 per cent of gross domestic product (GDP) as at end-June 2025, and Finance Ministry (MoF) projections indicate that the ratio will remain steady around this level through 2026, which falls below the statutory debt ceiling of 65 per cent.

CIMB said in a research note today that the country’s debt service charges are projected to rise at a milder pace of 7.6 per cent year-on-year (y-o-y) to RM54.3 billion this year and 7.4 per cent y-o-y to RM58.3 billion in 2026 (2024: RM50.5 billion, 9.0 per cent y-o-y), supported by smaller net borrowings and a lower cost of borrowing.

“Positive surprises in nominal fiscal deficit consolidation for 2025-2026 help moderate the challenges posed by supply headwinds in the coming year, given greater refinancing needs due to higher Malaysian Government Securities (MGS) and Government Investment Issues (GII) maturities (2026: RM108.7 billion, 2025: RM83.5 billion).

“We expect the MoF to mitigate rollover risk on bonds via bond-to-bill substitution, underpinning our MGS and GII supply forecast of RM173 billion to RM178 billion,” CIMB said.

The investment bank said that this represents a mild increase of RM2.5 billion to RM7.5 billion from RM170.5 billion in 2025, providing flexibility to accommodate the refinancing of US$1 billion global sukuk maturing in April 2026 in local currency (LCY) instruments.

Separately, MBSB Investment Bank Bhd said on balance, the Federal Government will remain committed to its fiscal consolidation target and this can be reflected in the continued downtrend in the fiscal deficits, shrinking from more than six per cent of GDP back in 2020 to 2021 during the global pandemic.

“Looking at the progress, we believe the government’s target to bring the deficit to less than 3.0 per cent of GDP by 2030 will be achievable,” MBSB Research, which is part of the bank, said in a note.

It said the continued deficit reflects the reliance on borrowings to finance the government’s development expenditure (DE), while the operating expenditures will be fully covered by the government’s fiscal revenue.

Taking into account the smaller fiscal deficit, MBSB Research estimated the gross issuance of government debts could bounce back to RM191.3 billion after the gross government borrowings are estimated to drop further to RM184 billion this year (2024: RM197.5 billion).

The higher borrowings next year will be attributable to a higher redemption amounting to RM116.7 billion, it said.

The net supply will be slightly lower at RM74.5 billion for 2026 (2025 estimate: RM76.7 billion).

MBSB Research also forecast that the gross issuance of MGS and GII will be slightly higher at RM177.3 billion next year (2025 estimate: RM170.5 billion).

“On that note, it estimated that the outstanding government debts will exceed RM1.3 trillion, potentially keeping the debt-to-GDP ratio at 64.3 per cent (2025 estimate: 64.9 per cent; 2024: 64.6 per cent),” it added.

-- BERNAMA