Malaysia: Wider Fiscal Deficit in 2022

 Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz recently said the projected consumption subsidies for this year will cover petrol, diesel, liquefied petroleum gas (RM37.3bil), cooking oil (RM4bil), flour and electricity to reduce the people’s cost of living, and subsidy bills (RM9.7bil), excluding welfare assistance from 2018 to 2022.

Added to other assistance such as social welfare assistance, including Bantuan Keluarga Malaysia (RM11.7bil) and other subsidies (RM14.6bil), he said the total subsidy so far is RM77.3bil for 2022.

On a separate note, FITCH Solutions Country Risk & Industry Research has revised upward Malaysia’s fiscal deficit forecast for 2022 to 6.5% of gross domestic product (GDP), from 6.3% previously.

While government debt had fallen slightly to 63% of GDP in 1Q 2022 from 63.4% of GDP in 4Q 2021, Fitch Solutions continues to expect the overall debt load to rise over the course of 2022, especially in light of the wider fiscal deficit that it now expects in 2022.

Public Debt Near Limit

Malaysia- Government Debt and Debt Limit, % of GDP

Fitch Solutions said it has revised upward its Malaysia’s revenue forecast to RM256 bil (15.2% of GDP) from RM234 bil (14% of GDP) previously mainly to account for the boost to revenue collection from higher average oil prices. Real GDP growth forecast is revised downward to 5.2% for 2022 from 5.6% previously.

On the same note, Fitch Solutions has also revised up its expenditure forecast for 2022 to RM364 bil (21.7% of GDP) from RM334 bil (21% of GDP) previously in order to reflect the Government’s additional spending on fuel and food subsidies amid rising prices in order to maintain the purchasing power of its citizens.

Subsidies are important to stem inflation. But this is a short-term measure. So, Government needs to plan a “weaning-off” period for stated subsidies in a recovery phase. Also, the Government has to be transparent on subsidies or grants to GLCs like MRT Corp, Prasarana, MAS and others. These are other leakages that need to be addressed, in order for deficits to be turned into surplus!

References:

Malaysia to see wider fiscal deficit in 2022 amid heavy subsidies, Cheah Chor Sooi, Focus Malaysia, 24 June 2022

Rising cost for stable prices, Eugene Mahalingam, The Star, 28 Jun 2022