Kuala Lumpur, Malaysia – The Malaysian Ministry of Finance has issued urgent directives to all ministries and government agencies requiring substantial cuts to their 2026 operating budgets. This move comes in response to immense financial pressures and a sharp rise in energy costs. These pressures have resulted from the ongoing military conflict between the United States and Iran, which has also had a direct impact on supply chains through the Strait of Hormuz.
According to an internal government document seen by Reuters, Treasury Secretary-General Yohan Mahmud Merican has sent a clear message to government officials about the need to reduce unnecessary spending.
The document explained that the conflict in the Middle East has led to an unprecedented surge in global energy prices. This has negatively impacted the cost of living in Malaysia and, moreover, has increased the government’s financial burden in meeting subsidy needs.
“Astronomical” deficit in the subsidy bill
The document revealed that Malaysia’s public subsidy bill is expected to reach a record high of RM58.4 billion (approximately $14.79 billion) by the end of this year. This figure has shocked economic observers, as it far exceeds the amount originally allocated in the 2026 budget, which was estimated at only RM15 billion.
This dramatic increase is primarily due to subsidies on fuel and basic commodities. Kuala Lumpur has been forced to absorb the significant rise in global crude oil prices, which recently surpassed $111 per barrel, in order to protect its citizens from uncontrollable inflation.
Changing the priorities of Malaysia’s thirteenth plan
Government reports indicated that the Iranian-American conflict imposed a new economic reality that necessitated a review of Malaysia’s Thirteenth Plan (13MP). With strategic trade routes disrupted, the goal was no longer simply growth, but rather “building economic resilience.”
While Malaysia is trying to leverage its renewable energy and hydroelectric resources in states like Sarawak to reduce its reliance on fossil fuels, the immediate strain on operating budgets remains the biggest risk.
Experts believe these cuts could impact infrastructure projects and public services. This comes as Malaysia attempts to free up the necessary funds to finance the “subsidy hole” created by the war in national resources.
