• Malaysia’s Budget 2025 pushes digital transformation with AI funding and SME incentives.
• MDEC backs Budget 2025’s digital focus.

Malaysia Digital Economy Corporation (MDEC) has welcomed Malaysia’s National Budget 2025, themed “Madani Economy: Negara Makmur, Rakyat Sejahtera,” describing it as a budget that solidifies the foundation for the nation’s digital future. With the country preparing to lead ASEAN in 2025, the timing of these initiatives couldn’t be better, said MDEC CEO Anuar Fariz Fadzil.

According to Anuar, the new budget provides the necessary support to accelerate Malaysia’s digitalisation journey, particularly through initiatives to adopt AI and foster inclusive growth in a variety of industries. “Malaysia is ready for the future,” he said, highlighting how the budget places the country as a collaborator in key areas such as AI, digital economy, and innovation, which are especially important as Malaysia prepares for its ASEAN leadership role.

For the country’s small and medium enterprises (SMEs), the budget includes incentives to adopt digital tools, which are likely to improve productivity and operational efficiency. The initiatives align with Digital Minister Gobind Singh Deo’s vision that Malaysia’s digital economy could soon make up 25.5% of the GDP, perhaps even reaching this milestone by 2024.

This year’s significant achievement was garnering US$16.9 billion in investments from global tech companies such as Amazon Web Services, Microsoft, Google, and Oracle, thanks to collaborative efforts by government agencies, including MDEC. According to Anuar, these investments highlight Malaysia’s value as a regional hub for cloud infrastructure and a rising force in the digital economy.

AI and digital initiatives take centre stage

The government has earmarked RM10 million for the National AI Office and RM50 million for AI in education. The allocations reflect Malaysia’s commitment to advancing AI while fostering a skilled talent pool. Anuar cited Malaysia’s recent establishment of the ASEAN AI Safe Network as a proactive step toward ethical AI development, and MDEC’s support for these initiatives will guarantee that AI technologies are implemented responsibly.

Malaysia’s Digital ID project is also set to play a role. Digital ID intends to enhance trust in digital transactions and reduce online fraud by introducing a secure, standardised mechanism for online identity verification, contributing to Malaysia’s broader digital transformation.

Supporting startups and innovation

Malaysia’s startup ecosystem is expected to profit considerably from the RM1 billion National Fund-of-Funds and RM1 billion Pioneer Fund, both managed by KWAP. MDEC also welcomed additional support for Cradle Fund to help local startups grow globally, alongside a matching grant to encourage collaboration between startups and government-linked companies (GLCs) through venture capital.

Programs like MDEC’s Founders Centre of Excellence (FOX) continue to be vital for emerging startups, providing mentorship and critical resources. Prime Minister Anwar Ibrahim has cited Vitrox Bhd as a success story – founded by two Universiti Sains Malaysia engineers, Vitrox has grown into an international player in the electronics sector.

Through collaborations with entrepreneurs and local communities, MDEC aims to ensure that Malaysia’s digital economy not only grows but also creates opportunities for all, reinforcing Malaysia’s position as a digital leader in the ASEAN region.

Fiscal sustainability concerns

Malaysia’s fiscal sustainability has come under scrutiny as the National Budget 2025 approaches an all-time high of RM421 billion. The budget’s extensive expenditure plan includes significant subsidy cutbacks and an expanded tax base, but analysts are apprehensive.

While targeted subsidies are intended to help lower-income groups, there is a fear that the policies may put a strain on vulnerable households already dealing with growing living costs.

Extending the Sales and Services Tax (SST) to cover more goods and services could encounter resistance from businesses and customers due to increased prices, especially during a period of economic uncertainty.

Challenges in scaling AI education and skills

The government’s commitment to AI education and skill development is a positive step toward digital transformation, but progress towards these goals efficiently presents problems.

Experts note that rapidly scaling up AI-focused educational resources will be important in meeting demand for digital skills, yet the process could face hurdles. Bureaucratic delays and implementation bottlenecks may also slow progress.

Additionally, with AI evolving so quickly, Malaysia will need to update its curricula and training programs continuously, an effort that requires both agility and substantial resources.

Balancing growth with socioeconomic impact

While Malaysia’s investments in digital infrastructure and AI hold promise for economic growth, some experts warn of potential socio-economic risks. Without careful implementation, the initiatives could unintentionally deepen socio-economic divides.

If the change toward targeted subsidies is not managed successfully, it may have an unintended impact on low-income households. While the rise in the minimum wage is a positive move, it may put financial strain on smaller firms already struggling with operational costs.  

The goal will be to find a balance that supports digital growth without overburdening the most vulnerable.

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