At the same time, youth unemployment remains stubbornly high, with 10 per cent of Malaysians aged between 15 and 24 struggling for work.

With a rapidly ageing nation and fewer young workers replacing them, experts warn of a lower tax base, depleted retirement funds and a future where young people are unable to pay for their own retirement.

On Friday, Anwar will lay out his budget for 2026 in parliament, aiming to placate voters squeezed by rising living costs and fearing for their futures as the value of pensions shrinks and global economic forecasts dim.

At the same time, analysts say, he will have to offer something for the growing number of young people neither working nor in education, whose work outlook has been thrown into doubt by the march of artificial intelligence.

Anwar must call national polls by early 2028 at the latest, making his next budget crucial in setting the scene for the run-up to an election campaign.

“Pension reform is on the table, aiming to contain the growing fiscal burden,” Kenanga Investment Bank said in a pre-budget research note.

“This includes possible retirement age increase to 65, broader social protection coverage and addressing the rising cost of living.”

The government has also warned that millions of Malaysians risk poverty in old age, with less than half of about 7.4 million Malaysians aged between 18 and 55 on track to meet the basic savings threshold of 390,000 ringgit (US$92,400) needed to live modestly till they turn 80.

But Anwar’s administration also needs to provide better training and employment opportunities for Malaysia’s youth by encouraging small and medium-sized companies to train and hire younger people, according to Kenanga.

Current programmes had only made a “modest” dent on youth unemployment, the bank added.

From this month, Malaysians have a limit of 300 litres of petrol at a price of 1.99 ringgit (47 US cents) a litre each month.

After that, they will have to pay the market price of 2.60 ringgit.

The subsidy cut “opens an opportunity to retarget more subsidies such as liquid petroleum gas, cooking oil, electricity, food assistance and many more”, said Mohd Afzanizam Abdul Rashid, chief economist with Bank Muamalat.

The government is also not expected to add on any new taxes after a broad roll-out over this year – most notably the controversial expansion of the sales and services tax aimed at luxury and discretionary spending.

Malaysians may see further exemptions from sales and services tax pending ongoing negotiations between the government and affected parties, according to Sim Kwang Gek, Malaysia tax and legal leader with “Big Four” accounting firm Deloitte.

“We anticipate the government to consider broadening the scope of the exemptions on business to business transactions, which is currently restricted to transactions involving the same type of service being acquired and provided,” Sim said.