THE Finance Minister is expected to hand down a “Secure, accelerate and rebuild” 2022 Budget on Oct 29 amid the still-lurking Covid-19 virus and external uncertainties.
Under the National Recovery Plan, the economy has reopened in stages with some relaxation of movement restrictions, raising hopes for a pick-up in economic and business activities in the fourth quarter of 2021.
The uneven global recovery remains subject to downside risks. Many countries are still racing against time to vaccinate its population as the highly contagious and deadlier Delta variant spreads.
The global economy is estimated to grow slower at 4.9% in 2022 from 6% in 2021; international trade to expand by 7% in 2022 (9.7% in 2021); while Brent crude oil price holds steady (US$63 or RM262.70 per barrel in 2022 versus US$65 or RM271.04 in 2021).
Stagflation concerns and the uncertain future path of monetary policy and tapering of assets purchase in some advanced economies would trigger higher volatility in both the financial and foreign exchange markets.
Malaysia is still mired in an uneven economic recovery. There is growth divergence across sectors; some businesses are still struggling and jobless rate remains high at 4.8% in July.
As we rebuild our shattered domestic economy, the priorities of Budget 2022 must be framed to keep our country safe while living with Covid-19 as an endemic disease; accelerate the recovery and reconstruct from the deep economic scarring.
The immediate priorities are to rebuild and sustain public confidence and trust.
Along with the ongoing vaccination programme, we must maintain a high level of preparedness to ensure sufficient intensive-care capacity in hospitals to cope with the pandemic as we move into the endemic phase, probably this month.
Next is to facilitate and secure the economic and business recovery with more emphasis on broader fiscal and financial supports for the affected households and firms, supporting the reallocation of labour and capital to growing sectors through targeted hiring subsidies, jobs creation and retraining as well as financing mechanisms.
Finally, we need to invest in the future by accelerating digitalisation, technology and automation, boosting productive capacity and productivity as well as competitiveness, accelerating the transition towards green and environmental growth as well as environment, social and governance (ESG) best practices, and ensuring the economic gains are equitably shared as outlined in the Shared Prosperity Vision 2030.
How large will the total allocation for Budget 2022 be? We have had the largest ever initial total allocation of RM322.5bil or 20.6% of GDP for Budget 2021.
The total allocation also included a RM27bil Special Covid-19 Fund, which was established for the funding of Covid-19-related financial relief and assistance programmes. The total allocation was revised lower to RM314.8bil.
The total expenditure allocation for Budget 2022 is expected to be lower at around RM310bil, of which RM60bil to RM65bil is for development expenditure.
The Special Covid-19 Fund is expected to be lower at RM18bil-RM20bil due to reduced allocation as well as some non-recurrence of the one-off large financial assistance programmes in 2020-2021.
We estimate an overall budget deficit of between 5.5% and 6% of GDP in 2022 (estimated between 6.5% and 7% in 2021).
Federal revenue collection is expected to recover moderately in 2022, in tandem with the projected economic recovery, improvement in business profit and household income while the collection of sales and service tax will be supported by the pick-up in consumer and tourism-related spending in accommodation, food and beverages.
Steady Brent crude oil prices, estimated at US$65-US$70 (RM271.04-RM291.89) per barrel, will help to keep petroleum income tax stable while Petronas dividend is expected to remain substantial at RM25bil in 2022.
An estimated RM500mil to RM2.5bil in investment income contribution would come from Khazanah Nasional Bhd, Bank Negara and some government-linked companies.
The overall net financing of Budget 2022 will largely tap from domestic sources.
The federal government’s debt ceiling will be raised to 65% of GDP from 60%, allowing fiscal space to meet contingency expenditure to support a firmer economic recovery.
Fiscal expenditure and actions should be nested within a credible medium-term fiscal stability framework to ensure that fiscal deficit and debt remains sustainable.
Lee Heng Guie is Socio-Economic Research Centre director. The views expressed here are the writer’s own.