UPDATE 2-Malaysia to slash 2026 federal operating spend over Iran war costs

The government's public subsidy cost was expected to reach 58.4 billion ringgit ($14.79 billion) this year, far surpassing the 15 billion ringgit originally approved for 2026, Johan Mahmood said in the internal document. As such, all ministries and federal bodies were to review their operational expenditures ⁠for the ​year and submit their proposals ⁠for spending cuts by May 15, he said.

Malaysia's treasury has ordered all ‌federal ministries, ​departments and agencies to cut their operating budgets for 2026 due to the impact of the Middle East conflict, according to a government official and documents ‌reviewed by Reuters. The directive comes as Malaysia scrambles to cushion its citizens from soaring prices triggered by the U.S.-Israeli war on Iran.

A government directive dated Wednesday and sent by Treasury Secretary-General Johan Mahmood Merican said a sharp spike ‌in energy prices stemming from the conflict has had a direct impact on living costs, swelling the government's ‌subsidy bill. The government's public subsidy cost was expected to reach 58.4 billion ringgit ($14.79 billion) this year, far surpassing the 15 billion ringgit originally approved for 2026, Johan Mahmood said in the internal document.

As such, all ministries and federal bodies were to review their operational expenditures ⁠for the ​year and submit their proposals ⁠for spending cuts by May 15, he said. The directive proposed several cost-saving measures including restrictions on salaries and allowances for unfilled vacancies, ⁠a 10% reduction on services, supplies and assets, and a 20% cut on budgets for statutory bodies and companies limited by ​guarantees.

Communications Minister Fahmi Fadzil confirmed the directive, adding that there were no plans by the government to re-submit ⁠its 2026 budget to parliament for now. "This is... in line with the government's intention to streamline programmes and their implementation, as ⁠Malaysia faces ​challenges arising from the global supply crisis," Fahmi, who is also government spokesperson, told a regular press briefing.

Fahmi said national oil firm Petronas had assured that the country's energy supplies were sufficient for May and June, though ⁠the government remains concerned about rising prices for fuel products including petroleum and diesel. The finance ministry has said ⁠it now costs the ⁠government 7 billion ringgit a month to fund fuel subsidies and other aid measures, a 10-fold increase from its spending prior to the outbreak of the conflict in ‌late February.

($1 = 3.9480 ‌ringgit)