Debt rises but stays within limit

By the Editorial Team · Tuesday, October 6, 2026

Malaysia’s statutory debt rose to RM1.295 trillion in 2025, keeping the debt-to-GDP ratio at 63.9%, below the legal limit of 65%, while debt servicing costs increased to 16.2% of operating expenditure alongside a significant rise in social welfare payments and a sharp cut in overall subsidies, particularly petroleum. This fiscal balancing act allowed the government to reduce its deficit to 3.7% of GDP and achieve a revenue surplus, reflecting improved fiscal health amid shifting expenditure priorities.

The Malaysian Federal Government’s statutory debt rose last year but remained within the legal limit of 65% of gross domestic product (GDP), according to the Auditor-General’s Report Series 2/2026. Statutory debt increased to RM1.295 trillion in 2025 from RM1.248 trillion in 2024, pushing the debt-to-GDP ratio up to 63.9% from 62% in the previous year. Despite the rise, the ratio stayed below the 65% threshold set by law.

Total government debt grew by 5.9%, reaching RM1.321 trillion in 2025, an increase of RM73.162 billion from the prior year. The debt servicing charges also climbed 6.4% to RM53.711 billion, representing 16.2% of the government’s total operating expenditure of RM330.776 billion. These charges include interest on government borrowings, discounts on treasury bills, profit payments on investment instruments, and management fees on loans. The report highlighted a rising trend in debt service charges as a proportion of operating expenditure, which rose from 14.1% in 2022 to 16.2% last year.

Despite higher debt and debt-related costs, the government successfully narrowed its fiscal deficit to 3.7% of GDP in 2025 from 4.1% in 2024, signaling an improved fiscal position. The deficit reduction amounted to RM3.878 billion. Government revenue also increased, growing by RM11.451 billion to RM336.069 billion in 2025, compared to RM324.618 billion the previous year. This led to a revenue surplus of RM5.293 billion, up from RM3.109 billion in 2024.

Development Fund deficits improved by RM1.118 billion, falling to RM9.420 billion last year from RM10.538 billion in 2024. Concurrently, new government borrowings dropped 8.2% to RM185.577 billion in 2025, down from RM202.248 billion the year before.

Dividend income also increased slightly, totaling RM39.547 billion, up by RM535 million or 1.4%. Petronas was the largest contributor, disbursing RM32 billion, while Khazanah Nasional Bhd, the sovereign wealth fund, doubled its dividend to RM2 billion from RM1 billion.

A notable shift in government expenditure was evident in welfare and subsidy spending. Social welfare and direct cash assistance payments surged by 380.8% to RM20.364 billion in 2025 from RM4.235 billion in 2024. This increase was mainly driven by payments under programmes such as Sumbangan Asas Rahmah (Sara), Sumbangan Tunai Rahmah (STR), and the Budi Madani subsidy assistance, along with related operational costs.

In contrast, overall subsidy spending fell sharply by 40.1%, dropping to RM23.428 billion from RM39.096 billion in 2024. The most significant reduction came from petroleum subsidies, which fell by RM15.793 billion to RM19.114 billion. This decline was attributed to lower global crude oil prices—averaging US$69.05 per barrel in 2025 versus US$80.82 in 2024—and the implementation of targeted subsidy initiatives for diesel and petrol introduced in mid-2024 and late 2025, respectively.

Petroleum subsidies cover petrol, diesel, and liquefied petroleum gas (LPG). The government’s shift toward targeted subsidies aims to optimize expenditure while continuing to support vulnerable groups.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.