Malaysia will likely revise this year’s budget to further narrow the deficit, one of the key planks of Prime Minister Anwar Ibrahim’s platform focused on cutting debt and supporting vulnerable households.
(Bloomberg) — Malaysia will likely revise this year’s budget to further narrow the deficit, one of the key planks of Prime Minister Anwar Ibrahim’s platform focused on cutting debt and supporting vulnerable households.
The new government’s first spending plan on Friday will probably target a gap of 5% of gross domestic product, compared with the 5.5% set by the previous administration in October, according to the median estimate in a Bloomberg survey of 11 economists.
“We believe the government’s focus will shift to a narrower path to fiscal consolidation, addressing the issue of unsustainable debt, the high cost of living, plans for targeted subsidies, and possible widening of the revenue base,” wrote CGS-CIMB economist Nazmi Idrus in a note.
Anwar, who came to power in November, is looking to boost fiscal resilience as a safeguard against threats from a dimming global economy. Fitch Ratings this month warned that internal risks include growing public debt, low budget revenue and lingering political uncertainty that hinders long-term policy making. The company reaffirmed Malaysia’s BBB+ rating and stable outlook.
What Bloomberg Intelligence Says…
Three years of economic mayhem caused by the pandemic has left its mark on Malaysia, leaving the nation in a much less resilient state. High external and sovereign debt, low import cover, and large portfolio liabilities have made Malaysia vulnerable, despite better trade balances. Oversized reliance on the external economy will make the economy susceptible to global economic disruptions.
Timothy Wee Lee Tan and Jason Lee
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Anwar would have to address credit rating companies’ concerns without upsetting the electorate and political allies ahead of local polls due this year. The prime minister rose to power through the support of rival blocs after no clear winner emerged from the Nov. 19 general election. His approval ratings, while positive, trail that of his predecessors during their first few months in office.
Voters are keeping an eye out on how well the government can address issues surrounding tepid economic growth and rising living costs, according to pollster Merdeka Center on Feb. 10. Malaysia expects the economy to expand between 4% to 5% this year, after a 22-year high in 2022. Analysts predict little change to the forecast on Friday, according to the Bloomberg survey.
“Performance legitimacy is paramount for the new and untested multi-coalition government,” said Firdaos Rosli of Bank Islam. This could translate to attempts to shore up support via populist measures targeted to the needy, with subsidies remaining high for the year, he said.
Consumer companies are set to gain the most out of this budget, according to the majority of the economists in the Bloomberg survey. Anwar, who doubles as finance minister, has ruled out introducing broad-based consumption taxes such as the goods and services taxes to prevent burdening the poor. The government will instead raise revenue by boosting tax collection via higher compliance, the survey findings showed.
Business friendly policies are expected to be continued, said Chin Yee Sian of RHB Bank, who anticipates support for small- and medium-sized entrepreneurs as well as priority sectors such as technology, tourism, agriculture and those with export capacity.
With so much at stake, Anwar has indicated multiple times that he will stay largely faithful to the spending plan his predecessor unveiled in October last year. The previous government had presented a tighter budget for 2023, while projecting weaker revenue and lower dividends penciled in from state oil company Petroliam Nasional Bhd. Anwar will likely maintain the budget size as well as revenue levels, according to the majority of the analysts surveyed by Bloomberg.
“Even with the early reopening of China, Malaysia’s economic outlook has soured since the last budget was tabled, as exports have fallen sharply. We expect a more cautious approach to spending and lower revenue estimates,” said Alex Holmes of Oxford Economics.
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