Budget 2022 hoped to pull Malaysia out of the doldrums
AS October 29 looms, industry observers await with bated breath for possible measures to be tabled under Budget 2022 in its bid to pull the Malaysian economy out of its slump.
Finance Minister Tengku Datuk Seri Zafrul Aziz is set to unveil the Budget 2022, with focus on on the ‘3Rs’ of speeding up recovery, strengthening economic resilience, and catalysing reform.
Malaysia’s pathway to recovery will continue with Budget 2022, which will be expansionary while laying the foundations for the Government’s wider and longerterm reform efforts.
In the spirit of transparency, Zafrul said the Ministry of Finance recently introduced a pre-budget statement and four consultation papers, a first in its history.
Speaking at the Invest Malaysia 2021, he said MoF had to date, received over 1,000 responses and comments.
“And, more than ever, we are engaging and consulting with more Malaysians from all walks of life, and across numerous sectors,” he added.
The government will put a strong emphasis on nurturing Malaysia’s growth in the upcoming Budget 2022 as the country progresses further towards recovery and transition from the pandemic.
Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the micro, small and medium enterprises (MSMEs), digitalisation, and women agenda would continue to be prioritised in Budget 2022, which is set to complement the 12th Malaysia Plan (12MP).
“Our recovery is secured and we have set a sustainable path for growth.
“The intention is to minimise economic scarring and to assist those who are affected, where the MSMEs and women are definitely among the hardest-hit groups in Malaysia due to the pandemic,” he said at the virtual launch of the Asean Digital Generation Report.
Recently, Zafrul revealed that economic sector recovery strategies will be realised through Budget 2022 that has been formulated based on the country’s current scenario.
He said the country is now undergoing a recovery period from the Covid-19 pandemic which had almost paralysed the whole business ecosystem.
“Budget 2022 will mirror the government’s determination to revive the country’s economy, hence, restoring foreign investor confidence in making Malaysia as the main investment destination,” he said.
“Budget 2022 will determine the continuity of policies and assistance to support businesses so that they are resilient in facing the crisis, besides safeguarding their livelihoods, wellbeing of the rakyat and business continuity,” he said.
RHB Investment Bank Bhd (RHB Research) group chief economist and head of market research Dr Sailesh K Jha and senior economist Nazmi Idrus viewed the revised 2021 fiscal deficit target of 6.5 to 7.0 per cent of GDP as providing a positive fiscal impulse to the economy.
“The government’s intent is to generate an even stronger fiscal impulse in 2022. The government, in our view, remains worried about the trajectory of domestic growth along with how the global economy will evolve in the next few quarters on back of concerns on what is trend growth in the US, the trajectory of growth in China, and geopolitical risks in the Middle East,” they said in a special not, recently.
In the background, Bank Negara Malaysia (BNM) is projecting 2021 GDP growth of three to four per cent year on year (y-o-y), which implies that the central bank expects a minus 0.8 per cent y-o-y GDP growth in the second half of this year (2H21), and thus the momentum of growth heading into 1H22 is implicitly assumed to be very weak.
At the same time, low to midend consumers along with SMEs continue to face stress.
“As a result, the space for the government to implement significant tax reforms via the re-introduction of the Goods and Services Tax and imposition of a capital gains tax on securities and or increase the capital gains tax on residential property is infeasible in the current environment,” they said.
“Nor does the government have the space to adjust its expenditure down significantly, with the exception of a few line items, in order to embark on a path of significant fiscal consolidation in 2022 in ringgit level terms.
“The 2023 budget, in our view, is the earliest we expect significant tax and revenue reforms to be announced.”
UOB senior economist Julia Goh and economist Loke Siew Ting expect the government to announce an expansionary budget (that is higher overall government spending) with policies to enable a stronger and sustainable recovery.
“This includes additional RM32.5 billion for Covid19 Fund, development expenditure of RM76.1 billion including rehabilitation plan for government agencies), continued targeted cash handouts and financial aid particularly for MSMEs,” they said in a statement.
Other goodies that might be considered include tax incentives to promote electric vehicles, revive domestic tourism sector, and boost private investments in high value-added industries particularly electrical and electronics (E&E), aerospace, global services, halal industry, creative, tourism, biomass, and smart farming.
“Total government expenditure is projected to rise 2.9 per cent to RM338.1 billion in 2022,” they added.
“This will be partly cushioned by an estimated revenue collection of RM230 billion leaving a fiscal shortfall of RM107.3 buillion for 2022.
“The budget gap is equivalent to 6.5 per cent of GDP next year, smaller than an estimated seven per cent of GDP for this year.”
‘And, more than ever, we are engaging and consulting with more Malaysians from all walks of life, and across numerous sectors.”
— Tengku Datuk Seri Zafrul Aziz, Finance Minister