Price stability key in retabling of Budget 2023

Centre for Market Education chief executive officer Carmelo Ferlito

PETALING JAYA: Economists are hopeful that the retabling of Budget 2023 will focus on sound fiscal policies, sustainable economic growth and measures that will tackle rising inflation.

Malaysia University of Science and Technology professor Geoffrey Williams said any increase in overall spending should be modest.

“There must be an emphasis on price stability and the cost of living, supporting economic growth in case there is a global downturn, promoting investment and micro small and medium-size enterprises and moving forward on reforms and social protection,” he told StarBiz.

Williams added that the high growth pushed by policies of both the previous governments will need readjustment in fiscal policy to balance and coordinate with monetary policy.

“If this is done properly, we could get a virtuous cycle of falling inflation, a pause in interest rates and a return to stable growth.”

Centre for Market Education chief executive officer Carmelo Ferlito said it would be important for the budget to focus on maintaining operations and good points like tax cuts.

He added that incentive schemes proposed under the previous Budget 2023 should be saved.

“However, those good moves, to be sustainable and tackle inflation, should be accompanied by government spending cuts and a more global fiscal reform.”

The Dewan Rakyat is expected to meet later this month to approve a mini-budget to ensure that civil servants are paid their salaries in January.

This is because Budget 2023, which was tabled by former Finance minister Tengku Datuk Seri Zafrul Abdul Aziz on Oct 7, was not approved as Parliament was dissolved three days later.

Newly appointed 10th Prime Minister Datuk Seri Anwar Ibrahim has said that a new comprehensive budget would be tabled early next year.

Williams said the mini-budget in December to pay civil servants and possibly offer a one-off assistance payment to low-income groups might be better.

“A RM250 payment to the B50 would cost only around 0.06% of gross domestic product (GDP) for example.

Commenting on the outlook of Malaysia’s GDP performance for the final quarter of 2022, Ferlito said economic growth will likely be “less spectacular” than in the previous quarters of this year.

“This is due to the higher baseline from the fourth quarter of 2021, normalisation of growth, the election period, inflation and uncertainties over 2023.”

Williams meanwhile said most of the economic growth had already taken place in the first three quarters of this year.

“Most of the growth is already there. Even if there was no growth in the final quarter of this year, we would have an annual growth of 7.7% in 2022.”

Malaysia’s GDP expanded 14.2% year-on-year in the third quarter of 2022, which was a stronger pace than what most economists predicted amid the country’s continued recovery on strong domestic demand.

The growth in the country’s third-quarter GDP beat the median forecast of 11.7% in a Reuters survey of economists and was up from 8.9% in the preceding quarter.

In a statement last month, Bank Negara said the country’s economy was underpinned by improvements in the labour market and income conditions as well as ongoing policy support.

Williams noted that GDP had grown 9.3% in the first three quarters of 2022, compared with the first three quarters of last year.

“This includes 8.9% and 14.2% in the second and third quarters of this year, respectively.

“This is unsustainable and has been driven by higher government spending, extra Employees Provident Fund (EPF) withdrawals and the effects of opening up the economy.”

Williams said this had caused higher inflation and interest rates.

“The demand side factors will not continue into the future so the economy will slow down and of course there is a risk of slower global growth and trade.

“There will also be subsidy reform which must be handled very carefully,” he said.

Bank Negara expects the full-year 2022 growth to exceed the 7% projected earlier due to the healthy growth in the first nine months of this year.

Williams said the EPF injections and government spending this year had pushed growth from the demand side.

“We expect slower growth in the fourth quarter of 2022. We estimate GDP growth for the full-year at around 8.1%, but it could be even higher than that.”

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