KUALA LUMPUR: Malaysia's Economy Ministry seeks to allocate RM58 billion, or 70 per cent of the Second Rolling Plan (RP2) 2027 development expenditure, for basic development projects to ensure the continuity of ongoing initiatives, sustain economic growth momentum and accelerate national development amid a challenging global environment.

The proposal, which has yet to be submitted to the Finance Ministry for consideration under the 2027 budget, underscores the government's continued reliance on development spending to drive economic activity, create jobs and strengthen long-term productivity.

Basic development expenditure covers core public investments in physical infrastructure and essential services, including roads, schools, healthcare facilities, water supply, flood mitigation and other strategic projects. RP2, which comes under the Thirteenth Malaysia Plan, involves project screenings and budget examinations managed by the Ministry of Economy.

Economy Minister Akmal Nasrullah Mohd Nasir said maintaining a strong allocation for basic development would ensure the continuity of strategic projects, support regional development and accelerate the country's physical infrastructure.

Data from the Finance Ministry showed basic development expenditure amounted to RM57.6 billion, or 71 per cent of total development expenditure, in 2026, compared with RM55.67 billion, or 65 per cent, in 2025.

Akmal said project selection would continue to prioritise implementation readiness over ambition.

"We do not choose projects because they are easy to approve. We choose projects because they are ready to be implemented and capable of solving problems," he said during the Economy Ministry's monthly assembly in Putrajaya on Monday.

Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the proposed allocation suggests the government will maintain an expansionary fiscal stance, with development spending aimed at generating strong multiplier effects across the economy.

He told Business Times that increased spending on development projects will benefit contractors and vendors, which in turn supports employment, business activity and domestic economic growth.

Afzanizam expects basic infrastructure to remain the government's priority under the 2027 budget, particularly investments in schools, clinics, roads, flood mitigation projects and water infrastructure, as these projects deliver long-term economic and social benefits while addressing critical public needs.

Measured Spending

Sunway University economics professor Dr Oh Ei Sun said the projected development spending indicates the government is prioritising the completion of ongoing projects over launching new initiatives, given heightened global uncertainty.

"Launching new initiatives amidst global economic uncertainties would have been very risky," he told Business Times.

While describing the increase in development spending as modest, Oh said the 2027 budget should place greater emphasis on strengthening infrastructure and utilities, particularly energy, water supply and digital connectivity, to support future high-technology investments in Peninsular Malaysia while improving living standards in East Malaysia.

He said Malaysia's export-orientated economy remains vulnerable to external shocks despite its strong first-half growth.

"As Malaysia is an externally orientated trading economy, global uncertainties that could impact energy and food supplies, as well as disrupt global growth, would have direct impacts on Malaysia's growth."

On fiscal policy, he said the government would need to balance development spending with its fiscal consolidation objectives through a combination of new revenue measures and stronger governance.

"It may have to raise new taxes (which would impact business growth) and plug leakages (further anti-corruption efforts) to ensure development and maintenance needs," he said.

Oh, said development expenditure would only deliver stronger private investment and higher productivity if projects were aligned with industry needs and executed efficiently.

"Besides improving efficiency of project delivery and also reducing corruption and collusion, the development projects or incentives should be in line with what the private sector truly desires and is capable of absorbing and magnifying; else, they would end up as the latest examples of the already ubiquitous white elephants," he said.

Balanced Approach

Economist Geoffrey Williams said the projected allocation by the Economy Ministry reflects a prudent fiscal approach that balances development priorities with fiscal discipline.

He described the proposal as a conservative budget that prioritises the completion of existing projects rather than a major expansion in public spending.

"This is very conservative and focused on maintaining existing projects with only a minor increase from 2026. This is good because it reduces the need to borrow," he told Business Times.

Williams said the government's development strategy is increasingly shifting towards leveraging government-linked investment companies (GLICs) and government-linked companies (GLCs) through initiatives such as GEAR-uP (Government-Linked Enterprises Activation and Reform Programme) to support investment while reducing reliance on government borrowing.

"It maintains development expenditure but reduces reliance on tax and borrowing. This is a very good strategy. The sectors are mainly infrastructure and social sectors with commercial opportunities shifting to GEAR-uP and GLICS", he said.

Williams said Malaysia's stronger-than-expected economic performance in the first half of the year demonstrated the resilience of businesses despite global headwinds and expects growth to remain above Bank Negara's forecast range in the second half.

"Our forecast is for growth to remain strong in the second half of the year and exceed the 4.0 per cent to 5.0 per cent range of Bank Negara," he said.

"The government has taken a fiscal hit from the oil price hike. Without this, the fiscal position would be very strong from subsidy rationalisation."

"Nonetheless, the economy has been protected and consumers relatively unharmed because petrol and diesel prices have been maintained. This is excellent economic management. I don't normally use the term "excellent" but it really is excellent," he said.

Looking ahead to the 2027 budget, Williams said the government is likely to introduce more measures aimed at supporting household incomes ahead of the next general election.

He expects the budget to include higher allocations for the Sumbangan Tunai Rahmah and Sumbangan Asas Rahmah programmes, the introduction of a non-contributory pension and additional initiatives to ease cost-of-living pressures amid stagnant wage growth.