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HSBC expects Malaysia's deficit to be lower at 4.9 pct in 2023

05/10/2022 07:18 PM

KUALA LUMPUR, Oct 5 (Bernama) -- HSBC Global Research expects some degree of fiscal consolidation in Malaysia’s Budget 2023, with a likely lower deficit at 4.9 per cent of the gross domestic product (GDP) next year.

In a note, economist Yun Liu said this would still be higher than the 2015-2019 average of 3.3 per cent, and a long way from achieving the government’s goal of a fiscal deficit of 3.5 per cent of the GDP in 2025.

“After three consecutive years of large fiscal deficits, some form of fiscal consolidation would seem a likely priority.

“Budget 2023 may prove to be a complicated task between road mapping fiscal consolidation plans and a possible election budget,” she said.

Budget 2023 will be tabled by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz this Friday.

On the revenue side, Yun Liu noted that Malaysia’s tax revenue has been declining over the years due to the cancellation of the Goods and Services Tax (GST) in mid-2018, which accounted for around 20 per cent of revenues, and replaced with the Sales and Services Tax (around 10-15 per cent of revenues).

She quoted Tengku Zafrul who previously said that the government is studying all tax options, suggesting that the introduction of any new tax would take a long time to go through all the relevant procedures, raising doubts as to whether the GST can be re-imposed soon.

 “If Budget 2023 is indeed an election budget, it will be difficult to introduce major tax reforms,” she said.

Yun Liu said based on revenue and expenditure data over the first half of 2022 (1H22), Malaysia is on track to reach another fiscal deficit of 6.0 per cent of the GDP this year.

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 RM77.3 billion or 4.3 per cent of the GDP.

“This came in the form of fuel subsidies, cash assistance, and food relief. 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 6.0 per cent this year, although some form of reallocation and reprioritisation of spending seems likely," she added.



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