Malaysian civil servants in batik attire walk through Putrajaya during lunch hour on Apr 9, 2026. (Photo: CNA/Fadza Ishak)

Malaysia to slash 2026 federal operating spend over Iran war costs

The finance ministry suggested RM5.4 billion (US$1.36 billion) in budget cuts for health and higher education ministries, according to local media reports.

30 Apr 2026, 03:20 · CNA · Join

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KUALA LUMPUR: 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.

In a government directive dated Wednesday (Apr 29), the finance ministry suggested RM5.4 billion (US$1.36 billion) in budget cuts for health and higher education ministries, according to local media.

A total of RM10 billion could be saved across the board, including RM3.06 billion from the health ministry and RM2.39 billion from the higher education ministry, according to local news platform Free Malaysia Today.

The treasury added that it was capable of saving RM664 million on its own, while the home and defence ministries could slash RM647 million and RM508 million respectively.

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A day later, the finance ministry said on Thursday that its proposed cuts for the health and higher education ministries involve only non-critical items, with all core spending to continue as approved under the 2026 budget, local media reported.

“These proposed cost adjustments include postponing events, limiting overseas trips and training programmes, saving on utilities, optimising agency reserves, and delaying recruitment for non-critical positions,” the ministry said in a statement.

“These measures are being prioritised to create fiscal space for aid and targeted subsidies to protect vulnerable groups and sectors affected by the global supply crisis,” it added.

The directive comes as Malaysia scrambles to cushion its citizens from soaring prices triggered by the United States-Israeli war on Iran.

The directive, 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 RM58.4 billion this year, far surpassing the RM15 billion 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 health ministry was allocated a total of RM46.5 billion under this year’s budget, while RM18.6 billion was earmarked for the higher education ministry. The two ministries were among those that received the highest budget allocations.

The directive proposed several cost-saving measures including restrictions on salaries and allowances for unfilled vacancies, a 10 per cent reduction on services, supplies and assets, and a 20 per cent 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 said in a separate statement on Wednesday that expenditure adjustments will not affect critical public services or economic stability.

It also said that ministry and agencies have been directed to restructure operating expenditure priorities in response to global supply crunch and rising subsidy costs, reported local news outlet New Straits Times.

"This step is aimed at ensuring government resources are managed efficiently so that assistance to the rakyat (people) can be sustained on an ongoing basis," the statement said.

The finance ministry said it now costs the government RM7 billion 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.

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