Prof Dr Yeah Kim Leng is a senior fellow and director of the Economic studies Programme at the Jeffrey Cheah Institute on Southeast Asia at Sunway University. He is currently president of the Malaysian Economic Association (MEA), a member of the Policy Advisory committee to the Prime Minister and a former external member of Bank Negara Malaysia’s Monetary Policy committee.
Budget 2025 represents a significant commitment by the Malaysian government to prioritise sustainability in its financial planning.
As the country grapples with the challenges posed by climate change and the need for economic resilience, this budget allocates substantial funding to environmental initiatives and green technologies.
Dr Yeah Kim Leng shares his views on the key areas of sustainability-related spending in Budget 2025.
How does Budget 2025 prioritise sustainability initiatives in its budget, and what specific areas receive the most funding?
One way to assess budget priorities is to examine the allocation of development expenditure which is akin to public investment.
Development spending involves capital investment that contributes to future economic growth, development and resilience.
A close proxy of sustainability initiatives in Malaysia’s annual budgets is the spending on the environmental sector.
The development spending on environment averaged RM1.7bil annually between 2014 and 2023.
It was raised to RM3.3bil in 2024 and maintained at RM3.2bil in Budget 2025, thereby affirming its continuing importance.
However, as a share of total development spending, it shows a decline from RM4.6bil in 2014 to RM1.9bil in 2023 before rising to RM3.9bil in Budget 2024 and RM3.7bil in Budget 2025.
Although the share is slightly lower than the previous year, the spending level on environment is maintained in 2025 and importantly, above the earlier decade average of below RM2bil per annum.
Another way to determine the prioritisation of sustainability initiatives is to examine the specific areas of sustainability-related spending, fiscal incentives and regulatory initiatives.
In this connection, the sustainability focus encapsulated in Budget 2025 include renewables, green energy transition, climate risk and disaster mitigation, carbon capture and storage, ecological fiscal transfers and the introduction of carbon tax for iron and steel industries by 2026.
How does Budget 2025 facilitate collaboration or enhance support with businesses and organisations focused on ESG/sustainability?
One of the institutions established to promote ESG/sustainability and the United Nations 2030 Sustainable Development Goals (SDGs) is the All-Party Parliamentary Party Group Malaysia Sustainable Development Goals.
Tasked to promote SDGs across all parliamentary constituencies and political parties, its efforts are being boosted with a higher allocation of RM20mil.
Another key initiative is the New Investment Incentive Framework aimed at encouraging more investments that comply with ESG standards.
Towards this end, tax incentives such as investment tax allowances or income tax exemptions are provided for carbon capture, utilisation, and storage (CCUS) activities.
Other sustainability-related measures involving the partnerships include the setting up of Kerian Integrated Green Industrial Park (KIGIP).
This project is being positioned as the first high-tech green hub in South-East Asia developed in partnership between SD Guthrie and Permodalan Nasional Berhad (PNB).
More importantly, the fiscal support to sustain the energy transition towards achieving net-zero emissions by 2050 is continued in Budget 2025 with higher allocation for the National Energy Transition Facilitation (NETR) Fund.
Other related projects being implemented are hybrid hydro floating solar farms in Chenderoh and Kenyir, large scale solar programme and extension of the Net Energy Metering programme for residential consumers to install solar photovoltaic systems.
In what way does sustainable budgeting contribute to Malaysia’s economic resilience, especially in the face of climate change?
Sustainable budgeting ensures that spending is kept at an appropriate level to maintain stable economic growth while ensuring that the revenue-expenditure gap is not out of line as to jeopardise trust and confidence in the government’s ability to manage the economy well.
Government borrowings also need to be kept at levels that do not lead to unsustainable rise in total government debt that could destabilise investor and market confidence, thereby reinforcing the country’s economic resilience.
In facing climate risks, there is a need for continuing budgetary focus on disaster preparation and mitigation projects.
Investments in environmental protection, climate adaptation and disaster preparedness are needed to address climate risks and strengthen climate resilience.
Not surprisingly, the budget provides for increased funding for flood mitigation and disaster preparation.
How does Budget 2025 support the development of green financing options, and what impact does this have on attracting investment in sustainable projects?
Further support for the development of green financing options is being implemented through the extension of the Green Technology Financing Scheme until 2026 with RM1bil financing being targeted.
Besides increasing access to financing, the cost will have to be kept at a level that is attractive for sustainability-related projects to be “bankable” given the typically large social and environmental value component inherent in sustainability projects.
Most sustainability projects provide services or amenities akin to a public good rather than a private good where the benefits can be fully captured by the project developer.
Without cheaper financing that takes into consideration the public good nature, there will be under-investment in sustainability projects.
Based on Budget 2025, what trends do you foresee for Malaysia’s sustainability efforts in the coming years?
The energy transition from fossil fuels to renewables and achieving net zero emissions by 2050 will continue to be at the forefront of Malaysia’s sustainability efforts.
Complementing the shift to clean energy are investment in carbon capture, utilisation and storage (CCUS), electrification especially plug-in hybrid and battery electric vehicles (PHEVs and BEVs) and mainstreaming biodiversity as the core of sustainable development, healthy ecosystems and human well-being.
At the heart of biodiversity is the environmental protection and conservation of permanent forest estates and other gazetted forests.
Ecological fiscal transfers as raised in Budget 2025 will likely have to be increased substantially to avoid irreversible destruction of natural habitats.
What are your overall thoughts about Budget 2025?
While one can argue over the need, adequacy or excesses of specific budget measures and items, the overall budget thrusts, strategies and measures are consistent with the medium-to-long term national development plans and sectoral blue-prints.
More importantly, it is a sustainable budget that addresses the country’s fiscal vulnerabilities and long term needs and goals as encapsulated in the United Nations 2030 SDGs.
