Revised Budget 2023 balances growth with fiscal consolidation while uplifting lower income groups and small businesses

Published on 24 Feb 2023.

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The latest Malaysian Budget 2023 is the largest on record with an allocation of RM386.1 bil. The various measures aim to reduce social disparity for lower income groups, support digital transformation of small businesses, and sustain growth for key sectors. Tax cuts for Micro, Small & Medium Enterprises (MSMEs) and the M40 group, maintained electricity tariffs for domestic users and MSMEs, and cash handouts should help sustain this year’s domestic demand amid high cost of living and softer global growth. In 2023, the government expects the economy to grow at 4.5%, the mid-point of RAM’s 4.0%-5.0% estimate.

The Government expects slightly lower fiscal revenues this year at RM291.5 bil (2022e: RM294.4 bil). While tax revenues are projected to rise to RM218.3 bil in 2023 (2022e: RM208.8 bil), non-tax revenue will fall due to smaller dividends. On a positive note, operating expenditure is projected to reduce to RM289.1 bil (2022e: RM292.7 bil) from a reduction in subsidies amid moderating crude oil prices and a gradual change from broad subsidies to targeted ones. That said, subsidies and social assistance spending (RM58.6 bil) will still remain fairly sizeable. It is encouraging to note the higher allocation for development expenditure in the revised budget; RM97.0 bil as opposed to RM71.6 bil in 2022, with infrastructure-related spending receiving the lion’s share. The higher allocation to development will spur economic growth given its higher multiplier effect.

We are heartened that fiscal consolidation remains a high priority for this government. While still relatively high, the fiscal deficit is expected to improve marginally to 5.0% by end-2023. But government debt is estimated to remain hefty at RM1.17 tril (62% of GDP) with still-elevated debt-servicing costs estimated at 15.9% of revenue in 2023. If the government can sustain discipline to ease its fiscal constraints, this could allow the country to pursue higher economic growth going forward.

Analytical contact
Nur Nadia Mazlan
(603) 3385 2513

Media contact
Tho Li Ming
(603) 3385 2511


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