Malaysia’s budget deficit to narrow in 2023, says Fitch Solutions

KUALA LUMPUR (Feb 28): Fitch Solutions Country Risk and Industry Research has lowered its forecast of Malaysia’s 2023 budget deficit as a share of GDP to 4.9%, from 5.3% previously, which is somewhat aligned with the government’s fiscal projections.

In a report on Monday (Feb 27), the firm said it now expects revenue to come in much higher than before in 2023, after revenue collection surged by 25.9% in 2022.

Fitch Solutions said the budget is expansionary overall, with the government announcing a slew of measures to lower the cost of living amid high inflation, as well as more progressive taxes.

“Broadly speaking, we have aligned our revenue and expenditure forecasts with the government’s projections for now,” it said.

Fitch Solutions said on the revenue front, the government expects a decline of about 1.0% to RM291.5 billion in 2023, as opposed to a revised estimate of RM294.4 billion in 2022.

“This is partly due to a 2.0 percentage point (pp) reduction of the individual income tax rate for M40 residents, who earn between RM35,000 and RM100,000 annually.

“To partially offset this, income taxes among higher income individuals will be raised by between 0.5(pp)-2.0pp, while the government will also introduce a luxury goods tax from this year,” it said.

The firm said that on the expenditure side, the government projects a marginal 1.2% decline in operating expenditure to RM289.1 billion in 2023, but net development expenditure is set to increase about 37% to RM96.3 billion, as compared to RM70.2 billion in 2022.

“Overall, however, total expenditure (net of loan recoveries) is projected to decline from a revised estimate of RM393.8 billion to RM385.4 billion, mainly due to savings from the abolishment of the Covid-19 fund,” it said.