KUALA LUMPUR: Malaysia's 2022 Budget is expected to remain expansionary despite limited revenue uptick on the back of a grand five-year spending plan under 12th Malaysia Plan (12MP), economists said.
They said the Finance Ministry's pre-budget statement in August about a few means of increasing expenditure would be helpful but they were unlikely to significantly raised revenues.
They felt that the economic recovery was still fragile and quite vulnerable as the risks of further Covid-19 infection would continue to affect how we do business.
OCBC Bank economist Wellian Wiranto said next year's budget was likely to stay expansionary in part due to the political considerations ahead of a potential general election next year.
Wellian said from 2021-2025, the 12MP envisaged a hefty 53.8 per cent increase in development expenditure compared to the 11MP of half a decade before, to as much as RM400 billion.
"To decipher how much development expenditure will be budgeted for 2022, it helps to know that the 2021 figure was slated to be RM68.2 billion, leaving an average of RM83 billion worth of annual spending for 2022-2025.
"Hence, if the government is keen to showcase its seriousness about hewing close to the 12MP's visions, it would likely ramp up to the tune of RM80 billion, if not more – at least initially," he said.
At the broad level, Wellian said the 12MP envisioned a considerable decline in fiscal deficit to 3.0-3.5 per cent of gross development product (GDP) by 2025, effectively halving the shortfall from what is likely to be close to 7.0 per cent of GDP this year.
To some extent, he said the pre-budget statement that the Ministry of Finance (MoF) laid out on August 31 did mention a few means of increasing expenditure.
The statement included an introduction of a Special Voluntary Disclosure Program for those who have failed to pay indirect taxes and the requirement for furnishing a Tax Compliance Certificate for firms that want to participate in government tenders.
"However, even though they are helpful, they are unlikely to move the needle in a major and sustainable way in raising revenues.
"We see the deficit coming in at 5.0-5.5 per cent of GDP. This should allow for a narrative of fiscal consolidation from what is likely to be a shortfall of 7.0 per cent of GDP this year. If recent years are any guide, it will also allow room for some stimulus should the economy face unforeseen headwinds once again,' he added.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the case for expansionary fiscal was highly visible and warranted.
Afzanizam said the economic recovery was still fragile and quite vulnerable as the risks of further infection would continue to affect businesses.
"So sizable expenditure will help to provide the catalysts for growth. Already, we have seen certain jurisdictions have seen an uptick in new cases despite having achieved the so-called herd immunity," he told the New Straits Times.
Afzanizam said there must be clear plans to reduce the budget gap.
"At least, the conversation has to start early in order to manage people's expectations especially when the economic recovery becomes well entrenched which necessitates the case for removing the fiscal support," he added.