Malaysia’s Budget 2025 has sparked discussions about its long-term impacts on foreign investment, economic growth, and the equity market. While immediate effects on equities appear muted, analysts remain optimistic about the government’s fiscal reforms and broader economic policies.
The budget aims to rebuild fiscal health and position Malaysia as an attractive hub for foreign direct investment (FDI), while addressing domestic economic challenges such as rising living costs and subsidy reforms. Here’s a breakdown of the key elements of Budget 2025 and what analysts are saying:
Subsidy Cuts and Economic Reforms
A key highlight of Budget 2025 is the planned reduction in RON95 petrol subsidies, which will take effect in mid-2025. Prime Minister Anwar Ibrahim announced a two-tier pricing system, allowing the wealthiest 15% of the population to pay the market rate while the rest of the population continues to benefit from subsidized fuel.
Additionally, the government will broaden the scope of the Sales and Services Tax (SST) to increase federal revenue, and plans to raise wages to mitigate the impact of inflation.
Analyst Insights: What This Means for Malaysia’s Economy
Kenanga Research
Kenanga highlighted a positive outlook for the consumer sector, especially discretionary spending, since subsidy cuts will only affect higher income brackets. The report emphasized that Malaysia is setting itself up to attract high-value tech investments, ensuring sustained foreign interest in the local market.
The introduction of a carbon tax by 2026 reflects the government’s focus on long-term ESG goals. This, along with better incentives for FDI, will support the country’s efforts to become a global hub for sustainable investments.
Maybank Securities
Maybank views Budget 2025 as reinforcing the government’s commitment to fiscal consolidation, though it cautions that it may not decisively improve Malaysia’s credit rating in the short term. The country’s public debt-to-GDP ratio remains relatively high compared to its peers, indicating that more structural changes are needed.
On the bond front, Maybank forecasts an increase in bond issuance towards the end of 2024, but notes that 2025 could see a decline in net issuance. Additionally, the US$1 billion maturity due in April 2025 is expected to be refinanced in foreign currency.
TA Securities
TA Securities views the budget as a catalyst for economic growth and corporate earnings. It maintains its end-2024 FBMKLCI target of 1,690, emphasizing that key sectors like construction, consumer goods, and technology are poised to benefit from the announced measures.
Apex Securities
Apex Securities believes that the budget will stimulate domestic spending, especially through measures aimed at reducing the cost of living. It noted that Malaysia’s revised economic growth projection signals stronger corporate earnings growth moving forward. Despite some initial concerns regarding the introduction of a 2% tax on dividend income exceeding RM100,000, several sectors—including tourism, healthcare, and technology—stand to benefit.
CIMB Securities
CIMB expects a neutral to slightly negative reaction from the equity market due to the unexpected dividend tax. However, CIMB believes that sectors like construction and healthcare will benefit from the government’s infrastructure and healthcare-focused measures.
Oversea-Chinese Banking Corp
OCBC highlighted that Bank Negara Malaysia (BNM) will closely monitor inflationary pressures as wages rise and fiscal measures take effect. Although the bank expects BNM’s policy rate to remain at 3% through 2025, it noted that any significant fiscal developments could alter this forecast.
Foreign Investment and Malaysia’s Fiscal Health
One of the major takeaways from Budget 2025 is the government’s focus on attracting foreign investments. The new budget signals that Malaysia is committed to long-term growth, with policies designed to enhance digital infrastructure, boost green energy investments, and streamline business operations.
Incentives aimed at encouraging tech-driven FDI—particularly in high-value industries—are expected to draw continued interest from multinational corporations. The Johor-Singapore Special Economic Zone and the Forest City free trade zone are further expected to attract foreign investors, boosting Malaysia’s real estate and tourism sectors.
Conclusion: A Step Toward Fiscal Resilience
While Budget 2025 may not be a game-changer for the property or equity markets in the short term, its long-term fiscal reforms and commitment to foreign investment are likely to support Malaysia’s economic trajectory. The introduction of subsidy reforms, wage increases, and green energy incentives will be critical in sustaining economic growth and maintaining investor confidence.
As Malaysia continues to build on its fiscal consolidation efforts, the nation is positioning itself as a key player in Southeast Asia’s investment landscape, driven by foreign capital, sustainable practices, and strategic reforms.
