KUALA LUMPUR: BMI has maintained its 2023 forecast for Malaysia’s federal government budget deficit at 4.9 per cent of gross domestic product (GDP) from 5.6 per cent in 2022.
In a report published today, the Fitch Solutions unit said that the forecast is slightly above the government’s projection, which forecasts a deficit of 5.0 per cent.
"Up till the first half of 2023 (1H 2023), the federal government’s revenue and expenditure have trended closely to the projections stipulated at the start of the year, and on this trajectory, we believe that the government is on track to achieve its target.
"Looking ahead, we expect Malaysia’s federal government’s budget deficit to narrow to 4.3 per cent of GDP in 2024,” it said.
Meanwhile, BMI also forecasts revenue growth to slow marginally to 15.3 per cent of GDP in 2023 from 16.5 per cent of GDP in 2022 due to the reduction in income tax payable for certain income brackets.
"As of 1H 2023, the federal government’s revenue collection stood at 51.1 per cent of the prevailing target for 2023 and sits above the five-year average of 47.8 per cent.
"Revenue collection for 1H 2023 stood at RM148.4 billion, up 16.8 per cent year-on-year (y-o-y) and was mainly attributed to a pick up in tax revenue collection,” it noted.
It said total tax revenue from direct and indirect tax increased by 17.4 per cent y-o-y in 1H 2023 to RM54.7 billion.
"Of this, the increase in direct tax collected due to higher income taxes outweighed the drop in windfall profit levy on crude palm oil, which led to lower indirect tax,” it added.
Besides, BMI expects total government debt to reach 60.8 per cent of GDP in 2023 -- while this will mark a marginal increase from 59.6 per cent of GDP in 2022, the figure sits below the revised statutory debt limit of 65.0 per cent.
"Additionally, as of June 2023, total federal government debt of RM1,145.0 billion (60.6 per cent of GDP) is in line with our forecast.
"Of this, 97.3 per cent of total government debt are ringgit-denominated securities, which limits exposure to foreign exchange risk,” it said.
It noted that the government has also laid out plans to bring down fiscal deficit levels over the medium term.
According to the Medium-Term Fiscal Framework 2023-2025, the government plans to reduce its fiscal deficit gradually to 3.2 per cent by the end of 2025, which would take the 2023-2025 average to 4.1 per cent of GDP.
"We expect total government debt to increase over the coming years as the country continues to run budget deficits,” it said. - Bernama