Budget 2025 Set To See Substantial Increase In Allocations On Solid Economic Growth - Economist

By Nurul Hanis Izmir

PUTRAJAYA, Oct 1 (Bernama) – Budget 2025 is set to see a substantial increase in allocations, driven by Malaysia's solid economic growth and rising government revenues, according to the deputy president of the Malaysian Economic Association, Professor Dr Yeah Kim Leng. 

He said that with every one per cent rise in the gross domestic product (GDP), the government’s revenue would increase by 0.94 points, allowing for greater investments in key sectors such as education, healthcare, and social welfare, particularly for the low-income and disadvantaged groups.

“Malaysia's GDP growth for 2024 is expected to be around four to five per cent, maintaining this growth rate is critical for us to generate additional revenue to support the government's increased social spending,” he told Bernama.

Yeah said Malaysia is benefiting from a confluence of favourable economic conditions, with GDP growth serving as the foundation for the government's ability to allocate more resources toward improving the living standards of the B40 and other vulnerable groups.

"The Malaysian economy is on a rising momentum, and with this growth, the government can afford to increase its social spending. This is necessary to address the cost of living and improve the overall quality of life, especially for the bottom 60 per cent of the population," he pointed out.

He noted that the government's commitment to reducing poverty and enhancing social inclusion aligns with the 13th Malaysia Plan (13MP), which emphasises sustainable growth and equitable wealth distribution. 

In addition to raising wages, Yeah emphasised the importance of enhancing the capabilities of low income groups by ensuring access to better livelihoods and opportunities. The private sector has been urged to accelerate wage growth, particularly for B40 youth.

Monetary policy and the ringgit’s performance

On the monetary front, Malaysia's overnight policy rate (OPR) currently stands at 3.00 per cent after some adjustments made by Bank Negara Malaysia to curb inflationary pressures and support sustainable economic growth. 

Inflation, which had been a concern earlier this year, moderated to 1.9 per cent in August due to government interventions and stabilising commodity prices.  Yeah reckons that inflation is expected to remain manageable going into 2025, helping to sustain consumer spending and economic momentum.

On the ringgit, he highlighted the strong performance of the local note, which is currently one of the best-performing currencies in the region. The ringgit closed at 4.1210/1260 versus the US dollar yesterday, which was a fresh 39-month high.

“The ringgit has been supported by interest rate differentials and Malaysia's ability to attract foreign direct investments (FDIs), particularly from global tech companies setting up regional data centres in the country. 

“We expect the ringgit to continue strengthening, and by the end of this year, it could hover between RM4.00 and RM4.20 against the US dollar. By the end of 2025, we could see it rise to RM3.50-RM3.80, especially if US interest rates (continue) to ease,” he said.

Yeah noted that Malaysia’s ability to attract “iconic” FDIs and its reputation as a data hub for Southeast Asia has bolstered investor confidence, further strengthening the currency.  “If we continue executing our plans with policy stability and clarity, we can expect this trend to continue,” he added.

Ensuring efficient spending and good governance

The economist also highlighted the importance of good governance in ensuring that increased government revenue is spent wisely. He said the government has been taking steps to plug the leakages and improve the procurement processes.  “It’s vital that every ringgit spent on social programmes reaches the intended beneficiaries, particularly the poor. This will not only improve efficiency but also build trust in government programmes,” he added.

He said the emphasis on governance and reducing inefficiencies in spending is key to maximising the benefits of the increased revenue from economic growth.  “With the right safeguards, we can ensure that the benefits of economic growth are equitably distributed and contribute to long term social stability and cohesion,” he advised.

Policy certainty and economic stability

As Malaysia approaches the full implementation of the 13MP, Yeah emphasises the importance of policy consistency and execution. He said economic and political stability will remain crucial for sustaining the country’s economic progress.  “Policy certainty is very important for investors, and it is clear that the government is committed to ensuring this. Now, the focus should be on execution,”  he concluded. 

With a stronger economy, a robust currency, and rising government revenue, Budget 2025 is shaping up to be a pivotal moment for Malaysia's continued growth and social development, setting the stage for a more equitable and prosperous future.

At RM393.8 billion, Budget 2024 was the largest supply bill tabled by the government. Of this amount, a record RM303.8 billion was set aside as operating expenditure while RM90 billion was allocated towards development expenditure.

Budget 2025, the third under the Unity Government, will be tabled in Parliament on Oct 18.

— BERNAMA