All eyes are on the goodies

PETALING JAYA: Budget 2023 is scheduled to be presented today and all eyes are on the goodies for what many are already calling an “election Budget”.

Spending will certainly be the focus as with previous spending plans, as money to be doled out to the various needy pockets of citizens and businesses will continue as per usual.

The theme of Budget 2023, which aims to build on the current momentum of economic recovery and continue with reforms to enhance socio-economic resilience, will be dotted through the various Budget proposals as promised a few months ago.

“It will be pro-investment, development, environment, empowerment; and most importantly, pro-rakyat,” said Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz in a report recently.

As for expectations, there is hope that the economic recovery seen in the recent quarters will carry through into the final two quarters of the year.

The World Bank had forecast GDP growth for Malaysia to hit 4.2% in 2023.

Last month, Tengku Zafrul said the government was optimistic the economy in the third quarter of this year would show stronger growth based on current positive economic indicators.

“We want 2023 to be the year where we do reforms ... for the global economy in 2023, which is expected to be more challenging, our country should be more prepared to take the right steps as the economic forecast for the next year depends on the global economic situation,” he said in the report.

Bank Islam in its report on Budget 2023 expected total budget allocation to come in higher between 2.0% and 2.5% than in 2022.

“Against this backdrop, the fiscal deficit would be lower at (around) 5.8% to 6.0%, with GDP growth in the range of 4.0% to 5.0%. Inflation remains manageable at 2.1%, while unemployment trends at around 3.5%,” it said.

“We anticipate that the government’s move to boost subsidies amid growth headwinds is justified.

“Higher subsidies keep inflation in check while economic and border reopening allows economic activities to return to their pre-pandemic levels gradually.

“As fuel takes the largest percentage of subsidies, we expect the government to rationalise subsidies by introducing a targeted fuel subsidy system or returning to the monthly/weekly retail pricing of petroleum products,” it said.

The fiscal deficit is another headline number that will bear watching and HSBC Global Research forecasts Malaysia to register a fiscal deficit of around 6% this year based on revenue and expenditure data through the first half of 2022.

“As one of the few beneficiaries of the global commodity upcycle, Malaysia was in the fortunate position of being able to provide the largest subsidies on record, amounting to RM77.3bil (4.3% of GDP). This came in the form of fuel subsidies, cash assistance and food relief,” it said.“Indeed, this approach has ensured that Malaysia’s inflation remained below that of regional peers, although core inflation has accelerated.

“Thanks to higher-than-expected growth and PETRONAS’s doubling of dividends, Malaysia is likely to maintain its deficit at (around) 6% this year, although some form of re-allocation and reprioritisation of spending looks likely,” it added.

HSBC said that after three years of high fiscal deficits, it expected a smaller deficit of 4.9% of GDP next year.

“That being said, there will be a fine balance between much-needed fiscal consolidation and a possible election Budget. Given the timing, major tax changes (such as the re-imposition of GST) are unlikely, raising questions on how to boost tax revenues in line with regional peers.

“Meanwhile, whether subsidies become more targeted, and how that is implemented, is worth watching out for,” it said.