S&P: Malaysia's Budget 2022 able to manage lingering effects of pandemic, restart economy

KUALA LUMPUR, June 27 (Bernama) -- Malaysia's budget for 2022 remains expansionary to manage the lingering effects of the pandemic and restart the economy, said S&P Global Ratings.

According to its latest report on Malaysia, the global ratings agency said with Malaysia entering the endemic mode, expenditure needs in areas such as healthcare and direct fiscal transfers are likely to be lower.

“Hence, we forecast the net indebtedness of Malaysia's general government will rise by 5.1 per cent of gross domestic product (GDP) in 2022, versus a 6.4 per cent increase in 2021, on moderately lower general and central government deficits,” it said.

S&P said the pandemic has significantly delayed the government's fiscal consolidation plans.

With the full reopening of the economy, reduced need for fiscal stimuli, and a more conducive policymaking environment, it believes the government is committed to resuming its consolidation trajectory from next year.

As a result, S&P has forecast net general government debt to stabilise at about 70 per cent of GDP from 2022-2025, with the annual change averaging 4.0 per cent.

Despite the prevailing high energy prices this year, the report said fiscal settings have yet to benefit and remain weak.

“Increased royalties and duties from higher commodity prices are largely offset by generous fuel subsidies to the populace. Therefore, historically we had observed a general lag effect from high crude oil prices to fiscal revenue boost,” it said.

Besides, S&P said the Malaysian government derives slightly less than 20 per cent of its total revenue from oil-related sources. 

The single largest component of this revenue is the dividend paid by state oil company Petroliam Nasional Bhd (Petronas), which paid RM25 billion in dividend in 2021 and is budgeted to pay the same amount in 2022.

“In our view, upside to fiscal revenues will come on stream in 2023 should Petronas experience windfall profits this year and declare a higher dividend next,” it said.

S&P said for fiscal consolidation to take hold on a sustained basis, on top of healthy economic growth, it expects the government to make significant efforts to restore its revenue-generating framework.

Notably, the current administration has begun inroads into a medium-term fiscal framework and enacting a Fiscal Responsibility Act.

-- BERNAMA