Budget 2025 is expected to focus on sustaining Malaysia's growth by aligning with the 12th Malaysia Plan (12MP), accelerating key projects for completion by late 2025, and fast-tracking Ekonomi MADANI initiatives. MIDF Investment Bank in its budget preview notes thatt key priorities are likely to include reducing the cost of living, boosting tax revenue, and improving governance and public service delivery.

The investment house also sees the federal government maintaining a GDP growth target of 4.0% – 5.0% for 2025, likely leaning towards the higher end. In comparison, MIDF said it maintains its growth forecast of 4.8% (2024F: 5.0%), barring any unforeseen external shocks.

While the government's fiscal deficit target of -3.5% by 2025, outlined in the 12MP Midterm Review (12MP MTR) and
the Medium-Term Fiscal Framework (MTFF 2024-2026), reflects optimism, the house viewed it as overly ambitious given current global uncertainties and anticipates a revision from the government to support domestic economic growth.
Meanwhile, we project a fiscal deficit of -4.0% (2024F: -4.5%).

A broad-based consumption tax is unlikely to be reintroduced soon. Instead, MIDF expects the government to focus on
alternative measures such as a full implementation of e-invoicing, the much-awaited Global Minimum Tax, and
enhancing income tax collection by simplifying the tax system and addressing tax evasion and exemptions to boost
revenue.

Despite the potential removal of the RON95 fuel subsidy in 2H25, operating expenditure is projected to rise to RM306.5b
in 2025, with savings redirected to targeted assistance, civil servant salary increases, and progressive wage policy.

Development expenditure is set to rise to RM94.5b, prioritising infrastructure projects like MRT3, enhancing agricultural
resilience, and boosting investments in education, healthcare, and affordable housing. Additional spending will focus on
national security amid regional tensions.

MIDF lists out its wish list which includes reversing Malaysia's declining fertility rate through financial incentives, expanded parental leave, and affordable childcare. And said it would also like to see a downsized affordable housing and better first-last mile connectivity to enhance homeownership and ease commuting, supporting long-term economic growth.

Malaysia's debt-to-GDP ratio is expected to ease to 64.9% by 2025, down from 65.1% in 2024. Prudent fiscal reforms,
such as subsidy rationalisation and revenue enhancements, will support this decline, ensuring long-term debt
sustainability.

Bond issuances are projected to decrease to RM170.0b in 2025 from RM190.9b in 2023, as the government step up
efforts to raise tax revenue, aligning with efforts to reduce debt dependency and fiscal deficit.

The 10-year MGS yield is expected to decline to 3.56% by end-2024 and further to 3.47% by end-2025, driven by strong
foreign demand and Malaysia's improving fiscal outlook, as global investors seek emerging market stability.