Published on 29 Oct 2021.
Against the trajectory of the current economic recovery, the supportive stance of Budget 2022 is appropriate. Notably, the Budget’s sizeable allocation of RM332.1bil, which is inclusive of an expanded COVID-19 Fund, will improve the Government’s ability to narrow the existing output gap brought on by the pandemic. In this context, the budget is well-targeted to ensure adequate recovery is achieved before fiscal consolidation resumes.
We view Budget 2022’s GDP growth target of 5.5%-6.5% to be realistic, given uncertainties still on the horizon. Fiscal revenues, which are budgeted at RM234 bil in 2022 (2021 estimate: RM221 bil), will be supported by elevated energy prices, a recovering domestic economy and non-tax revenues via the imposition of a one-off tax on high income companies and a new digital tax on online sales. Meanwhile, operating expenditure has increased to a budgeted RM233.5 bil amid an expanded social assistance programme. Development expenditure, with an enlarged allocation of RM75.6 bil in 2022 (2021 estimate: RM68.2 bil), has been largely oriented towards the transportation and education sectors as previously indicated under the 12th Malaysia Plan.
The government has projected its fiscal deficit at RM98.1 bil or 6.0% of GDP in 2022 (2021: 6.5%). Under these projections, public debt is estimated at RM1.1 tril (or 66% of GDP) by end-2022 and the aggregate statutory debt level is expected to reach 63.4% of GDP. While the statutory debt ceiling has not been breached, we note that debt servicing continues to be significant at 18.4% of total revenues. Over the medium term, we expect these fiscal metrics to ease amid the intended fiscal consolidation path and normalisation of economic conditions.
Going forward, the Government’s committed fiscal reforms, including (1) the introduction of a Fiscal Responsibility Act, (2) a Public Expenditure Review with the World Bank and (3) a medium-term revenue strategy are encouraging developments for government finances. These reforms will enhance the transparency of fiscal management and efficient execution of public expenditures, as well as improve business confidence in Malaysia over the medium term.
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