Murray Hunter
Malaysian Budget in trouble after Petronas profits take a tumble
Aug 31, 2025
Petronas financial report for the first half of the year to June 30, 2025 is out. Revenue has declined from RM 173.567 bil in 2024 to RM 132.563 bil in 2025. Profit after tax have decreased from RM 32.382 bil in 2024 to RM 26.192 bil in 2025, for the first semester.
Petronas management blame the impact of exchange rates and lower than expected prices for the different. However, rising operational costs contributed to this situation, where Petronas has responded in terminating around 5,000 employees. In addition, some Petronas subsidiaries like Petronas Chemicals Bhd recorded a RM 1.08 bil loss in Q2.
The government expects an RM 32 billion dividend from Petronas in 2025. However, Petronas own business analysis expects subdued trading over the next year due to lower use of ‘hydrocarbons’ throughout the world.
Petronas performance will have major implications upon the 2026 budget.
Non-tax revenue in the 2025 budget was RM 81 billion, of which RM 32 billion comes from Petronas. Any shortfall by Petronas is going to leave a hole in the budget. This must be compensated by borrowing more (increasing public debt), taxing more, or drastically cutting down on spending.
Borrowing more and increasing public debt is politically unpalatable, as would be raising tax. Cutting spending is very difficult as around 65 percent of the budget can’t be easily reduced. Such items as salaries, interest payments, pensions, and administrative operating costs are fixed in the immediate term. That means the only scope where the budget can be cut is on the development expenditure side, which would eat in monies available for projects.
One thing we can be sure of is that the 2025 budget will finish with a higher deficit than was forecast. Secondly, framing the 2026 budget is going to be very difficult, especially with all the commitments and promises made.
2026 is going to be a very tough fiscal year.
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