CGS-CIMB Research has found a rather ‘strong hint’ that Malaysia’s next general election is not far away.
The research house observed that the 2023 pre-budget statement has come early by almost three months this year – on June 3 instead of Aug 31 last year.
“This could suggest that elections are likely around the corner and the Government may want to push for an early budget,” economist Nazmi Idrus pointed out in an economic update focusing on content of the Government’s pre-budget statement.
“Thus far, checks with parliamentary schedule show that 2023F Budget will be tabled on Oct 28.”
Elsewhere, CGS-CIMB Research noted that it remains a big question mark as to how the Government plans to remove the existing petrol subsidy for the Top 20% of the Malaysian population in its quest for more targeted subsidies.
While it is positive on the imposition of a more efficient subsidy mechanism moving forward, the research house remains sceptical about how such mechanism can be implemented.
“Past Governments have toyed with this idea with little success; for instance, the Pakatan Harapan proposal for a petrol card back in 2018 never saw the light of day,” recalled CGS-CIMB Research. “Nevertheless, a successful implementation would be positive for government finances.”
With regard to a reversion to the Goods and Services Tax (GST) system, CGS-CIMB Research noted that the pre-budget statement did not mention the prospects of GST’s re-implementation.
“Given the sensitivity, we do not expect the Government to commit on GST although chances are that we may see a return of the tax in one form or another,” suggested the research house.
“The shift away from GST into SST (Sales and Services Tax) in 2018 caused the Government a loss of about RM20 bil which would be needed to plug the fiscal gap left by higher subsidies and pursue fiscal consolidation.”
Despite the high subsidy commitment, the Government expects a fiscal deficit at 6% of gross domestic product (GDP) this year which is an improvement from 6.4% in 2021.
“We believe this could only be achieved through higher dividend pay-outs by GLCs (government-linked companies), particularly PETRONAS,” opined CGS-CIMB Research.
“We believe PETRONAS would be able to surpass its initial commitment of RM25 bil dividend payment in 2022 as well as the Government expects an additional RM30 bil in subsidy spending.”
In August 2021, PETRONAS declared an additional RM7 bil dividend payment to the Government amid rising oil prices on top of its initial target of RM18 bil.
Meanwhile, the pre-budget statement did not mention a deficit target for 2023 although the statement highlighted the need for continued fiscal consolidation towards -3.5% of GDP by 2025.
“We pin further improvement in deficit to -5% of GDP in 2023 from -6% in 2022,” projected CGS-CIMB Research. “We do expect an expansionary ‘election’ budget with issues such as GST likely to be tackled post-elections by the new government.”
All-in-all, the research house maintained its GDP growth forecasts of 5.6% year-on-year (yoy) for 2022F and 5.0% for 2023F with its 2023 consumer price index (CPI) forecast of 2% may see an upside after the subsidy adjustment. – June 8, 2022
