Minister of Finance II, Amir Hamzah Azizan reported positive indicators of the economy as the year comes to an end. Fiscal deficit is expected to close at 3.8% of GDP for 2025, the ringgit emerges as Asia’s best-performing currency and unemployment is at a decade-low of 3%.
Despite concerns that the current government is quite slow in reforms, the Fiscal Responsibility Act and the Government Procurement Bill offer hope that the government is moving in the right direction.
The minister also reported initiatives to raise the ceiling through FDI approvals and raising the floor through Sumbangan Tunai Rahmah and SARA. A commendable effort is the subsidy rationalisation for electricity and fuel, which finally comes to realisation this year.
This is a key initiative to improve the government’s fiscal position whilst ensuring that the wellbeing of the rakyat, mainly the vulnerable groups, is taken care of.
Despite the positive signs, it may take a while before the rakyat feel that the government is doing the right thing, amidst rising cost of living, underemployment among graduates and various other issues facing ordinary Malaysians.
To bring further progress and wellbeing to the rakyat, the government may want to consider the following suggestions:
1. Plan and implement development holistically
Use metrics such as the Genuine Progress Indicator (GPI) and the Multidimensional Poverty Index (MPI) to complement the Human Development Index (HDI) as a key indicator in Ekonomi MADANI.
While GDP remains an important traditional indicator, national progress should be planned and measured through holistic measures to ensure sustainable development and economic resilience. Earlier work on GPI by Akademi Profesor Malaysia and enhanced MPI by IKRAM can serve as references to inform policy direction.
2. Adopt risk‑sharing instruments for fiscal consolidation
For fiscal consolidation and resilience, the government should seriously consider the adoption of risk-sharing instruments such as sukuk mudarabah to fund development spending. Studies by experts at the country’s premier Islamic finance academic institution, INCEIF University, should be consulted.
3. Promote sustainable development through social finance
To promote sustainable development and resilience in line with maqasid al-shariah, the government should foster social entrepreneurship, funded through social finance instruments (including zakat, waqf, sadaqah, philanthropy, etc.) in combination with blended finance and similar innovations.
Sustainable development and maqasid al-shariah should be emphasised as guiding principles in policy implementation for the benefits of current and future generations.
4. Implement evidence-based policies, with an emphasis on outcomes
Malaysia has many good policies, but implementation and effectiveness have often been an issue, compounded by bureaucracy, lack of transparency, and leakages. To improve effectiveness, the government should prioritise impact evaluation for key initiatives, particularly social programmes.
This includes meticulous programme design, policy innovation through experimentation, outcome measurement before and after implementation, and cost-effectiveness analysis. By adopting evidence-based policies, the government will better understand what works and what does not for the benefit of the rakyat and the nation.
5. Improve livelihoods through “gaji kehidupan wajar”
To improve livelihoods for the low and lower-middle income groups, the government should nudge industries and employers to implement “gaji kehidupan wajar” (living wage), following the example set by GLIC since May 2025. Strategies for implementing this intervention should be carefully designed, using appropriate incentive structures and behavioural nudges.
Mohammad Abdul Hamid
Head of Economic Prosperity Cluster
Pertubuhan IKRAM Malaysia
