KUALA LUMPUR: Malaysia could lose up to RM1 billion in gross domestic product (GDP) a month as haze curbs outdoor activities and dampens consumer sentiment, disrupting economic activity beyond its immediate impact on air quality.
MARC Ratings Bhd chief economist Prof Adjunct Dr Ray Choy said the estimated losses highlighted the economic costs of environmental disruptions, adding to the challenges of strengthening Malaysia's fiscal position and sustaining resilient growth amid global uncertainty.
Speaking at the MARC360 webinar on "Decoding Budget 2027 – The Economy and What Comes Next" today, he said Malaysia needed to strengthen its fiscal buffers to withstand economic shocks that could become more frequent, rather than treating each crisis as an isolated event.
He said geopolitical conflicts, climate disasters and health crises, once considered exceptional events, now required a different approach to economic management, particularly as global financing costs rose and governments had to balance development needs with fiscal discipline.
"Events that have traditionally been categorised as 'black swan' or unforeseen events are now raising new questions about the government's financial preparedness when crises occur in succession.
"Do we still regard 'black swan' events as exceptional occurrences, or are they becoming so frequent that they are no longer unusual, requiring us to start building fiscal buffers?" he asked.
Choy said Malaysia could strengthen its fiscal resilience through targeted fuel subsidies, a broader tax base and more efficient public spending.
Targeted subsidies could help contain government expenditure, although subsidy costs could remain high if geopolitical crises persisted, he said.
He added that rating agencies would continue to focus on efforts to broaden the tax base and improve fiscal flexibility.
Operating expenditure accounts for about 82 per cent of total government spending, limiting the government's ability to redirect funds when unexpected needs arise.
Choy said strengthening revenue and improving spending efficiency were therefore crucial to managing the fiscal deficit without compromising the government's ability to respond to crises.
He said Malaysia could potentially reduce its fiscal deficit to below three per cent of GDP based on the current trajectory of its fiscal position, although this would require sustained reforms, including broadening the tax base, improving fiscal flexibility and managing public expenditure more effectively.
A stronger fiscal position would not only enable the government to reduce its deficit but also create room for additional spending when crises arise, he said.
Choy said economic shocks extended beyond geopolitical conflicts and pandemics to climate-related crises that could escalate into major disasters, including floods.
"In this environment, the government needs to account for the possibility of such events occurring more frequently when planning the country's finances over the medium and long term.
"Apart from global crisis risks, rising bond yields and financing costs are also challenges that require attention, particularly as competition for funds intensifies," he said.
Choy said the artificial intelligence (AI) sector was absorbing a significant share of available market funding, making financing conditions more challenging.
Although the government relied mainly on the domestic market for financing, global market developments could still push up bond yields and borrowing costs, he said.
Higher financing costs could constrain the government's ability to fund development priorities while preserving sufficient fiscal space to respond to unexpected crises.
Choy also said Malaysia needed to ensure that sectors beyond the digital economy continued to support growth, despite the latter's appeal to global investors.
The primary sector, comprising agriculture, mining, quarrying, and oil and gas, contributed about 16 per cent of nominal GDP in the second quarter of 2026.
Growth in the sector had also improved in the post-pandemic period compared with the preceding period, reflecting shifts in global supply chains, he said.
On transboundary haze, Choy said the issue required continued regional cooperation, including efforts involving Malaysia and Singapore, as its effects crossed national borders.
"Asean is expected to continue supporting efforts to manage transboundary haze, with Malaysia also playing a role in addressing the issue with Singapore through regional cooperation.
"Addressing haze requires continued cooperation because its effects cross national borders, necessitating action that goes beyond domestic measures alone," he said.
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