BUDGET 2022, which will be presented on Oct 29, is likely to be expansionary in nature with strategies and measures to further stimulate the economy from the effects of COVID-19 pandemic on the country.
It will also act as catalyst on the implementation of the 12th Malaysia Plan (12MP) for the period 2021-2025 based on the Shared Prosperity Vision 2030 that will drive economic growth, sustainability and inclusiveness in the medium to long term, according to Affin Hwang Research.
“Our expectations are that the Budget proposals will be generous and people-friendly with cash assistance for the people, especially the lower income households, to help ease the burden of those affected by pandemic as well as alleviate the burden of rising cost of living,” projected head of research/chief economist Alan Tan Chew Leong and team in a Budget 2022 preview.
“We believe the ceiling limit of the COVID-19 Fund will be approved and raised from RM65 bil to RM110 bil with an additional allocation of RM45 bil for 2022 where so far RM38 bil has been spent in 2020 and RM27 bil allocated for 2021.
Affin Hwang Research further expects the tax and expenditure programme in Budget 2022 is likely to involve supporting the economy through expansionary measures.
In preparing the Budget 2022, we believe the official annual gross domestic product (GDP) growth forecast will likely be in the range of between 5%-6% for 2022 (3%-4% for 2021) in tandem with the assessment made by International Monetary Fund (IMF) which is projecting the global economy to grow at a steady pace of 4.9% in 2022 from 6% in 2021 (due to low base in 2020).
Since the announcement of Budget 2021 on Nov 7 last year, crude oil prices (Brent) have risen by 89.7% from US$39.45/barrel to US$74.83/barrel currently (Sept 22 ) with an average of US$67.51/barrel year-to-date.
“We believe that the Government will likely forecast a steady crude oil price assumption for 2022, possibly the same range of around US$62–US$72/barrel projected for 2021,” noted the research house.
With expectations that Budget 2022 will be an expansionary budget, the Federal Government will likely incur a budget deficit of 6.2% of gross domestic product (GDP), slightly lower than the official target of 6.5%-7% of GDP for 2021, according to the research house.
This was due to the fact that Government needs to maintain higher level of expenditure to sustain the economy going forward.
Moreover, the Government has over the past two years doled out eight total stimulus amounting to RM530 bil or about 37.5% of GDP, of which 47.2% has been disbursed.
As for the COVID-19 Fund, the Finance Ministry (MOF) has revealed that a total of RM56.4 bil has been spent under the RM65 bil COVID-19 Fund. In 1H 2021, about RM18.4 bil of the total RM27 bil allocated for 2021 has been utilised and RM38 bil spent in 2020.
MOF is further proposing to increase the COVID-19 Fund from RM65 bil to RM110 bil with an additional allocation of RM45 bil for 2022.
“The statutory debt ceiling is also likely to be approved and increased to 65% of GDP,” projected Affin Hwang Research. “Previously, the debt ceiling rate was raised to 60% of GDP during Budget 2021 from 55% of GDP which was to be enforced from February 2020 until Dec 31, 2022.” – Sept 24, 2021
