Malaysia may not meet its fiscal deficit targets for 2026 as the Iran war drives up the cost of fuel subsidies, Second Finance Minister Amir Hamzah Azizan said, adding that longer-term goals remain intact.
“If I end up at the end of the day, slightly short of the targets, it’s okay,” Amir said in an interview with Bloomberg TV’s Haslinda Amin on June 9, underscoring that the government’s priority right now is to protect vulnerable groups.
However, Amir said the government remains determined to achieve its medium-term goal of bringing the fiscal deficit to below 3 per cent of gross domestic product by 2028. That shortfall stood at 5.5 per cent when Prime Minister Anwar Ibrahim came to power in late 2022.
Malaysia and other South-east Asian nations like Singapore are bracing themselves for a more pronounced impact from the Iran conflict in the third quarter, as disruptions to global energy markets increasingly filter through to the local economy.
The effects are already beginning to be felt in Malaysia, with inflation accelerating to 1.9 per cent in April, the fastest pace since October 2024. Industries including aviation and agriculture are also getting hit.
The government has sheltered the population from some of the impact of the war by maintaining fuel subsidies. The most popular petrol, known as RON95, remains unchanged at RM1.99 (S$0.63) per liter, one of the lowest levels in the world.
Still, it has reduced the amount of subsidised RON95 that individuals can buy since April. Amir revealed that Malaysia’s fuel subsidy bill in May fell to RM3.5 billion from a high of RM7.5 billion in April, which was ten times its pre-war expenditure.
Amir also said that he is “not worried” by the recent slide of the ringgit, arguing that the fundamentals supporting the currency remain in place, and that it will be “better than what it’s showing today”.
The ringgit has gone from being among the best bets in Asia to being the worst performer in June, due to both political uncertainty ahead of key state elections and bets on US interest-rate hikes.
The Malaysian currency has weakened more than 2 per cent in June, though it is still barely changed against the dollar in 2026, ranking as the region’s best-performer after China’s yuan.
Neighbouring Indonesia has seen its currency decline more than 7 per cent in 2026, prompting the central bank there to deliver a shock rate hike on June 9 to buoy the rupiah.
While Malaysia’s policymakers say fuel supplies are secure until July, they are racing to reduce the country’s exposure to the Strait of Hormuz, the main chokepoint in global energy shipments.
The government and state energy giant Petroliam Nasional have begun lining up alternative crude sources and monitoring inventories as they seek to ensure sufficient supplies through year-end.
Despite the challenges, Amir said that Malaysia is still confident of achieving its goal of 4 per cent to 5 per cent growth in 2026, expecting to come in near the top end of that range.
Malaysia’s gross domestic product rose 5.4 per cent in the first quarter from the year before. The economy’s pace of expansion softened progressively across the quarter though, with monthly growth easing from 6.8 per cent in January to 4.1 per cent in March.
Still, Malaysia has entered the current bout of global uncertainty from a position of relative economic strength. Growth has outpaced most of its South-east Asian peers over the past year, supported by strong consumer spending, rising investment and a global frenzy for AI-related electronics and services.
The energy producing country also has less dependence on oil and gas imports than do neighbors like the Philippines, giving it a crucial buffer in the face of the US war on Iran. BLOOMBERG
