KUALA LUMPUR: BMI has maintained its 2023 forecast for Malaysia’s federal government budget deficit at 4.9% of gross domestic product (GDP), compared with 5.6% in 2022.
In a report published today, the Fitch Solutions unit said the forecast is slightly above the government’s projection, which forecasts a deficit of 5.0%.
“Up till the first half of 2023 (H1’23), the federal government’s revenue and expenditure have trended closely to the projections stipulated at the start of the year, and on this trajectory, we believe that the government is on track to achieve its target.
“Looking ahead, we expect Malaysia’s federal government’s budget deficit to narrow to 4.3% of GDP in 2024,” it said.
Meanwhile, BMI also forecasts revenue growth to slow marginally to 15.3% of GDP in 2023 from 16.5% of GDP in 2022 due to the reduction in income tax payable for certain income brackets.
“As of H1’23, the federal government’s revenue collection stood at 51.1% of the prevailing target for 2023 and sits above the five-year average of 47.8%.
“Revenue collection for H1’23 stood at RM148.4 billion, up 16.8% year-on-year (y-o-y) and was mainly attributed to a pick up in tax revenue collection,” it noted.
It said total tax revenue from direct and indirect tax increased by 17.4% y-o-y in H1’23 to RM54.7 billion.
“Of this, the increase in direct tax collected due to higher income taxes outweighed the drop in windfall profit levy on crude palm oil, which led to lower indirect tax,” it added.
Besides, BMI expects total government debt to reach 60.8% of GDP in 2023 – while this will mark a marginal increase from 59.6% of GDP in 2022, the figure sits below the revised statutory debt limit of 65.0%.
“Additionally, as of June 2023, total federal government debt of RM1,145 billion (60.6% of GDP) is in line with our forecast.
“Of this, 97.3% of total government debt are ringgit-denominated securities, which limits exposure to foreign exchange risk,” it said.
It noted that the government has also laid out plans to bring down fiscal deficit levels over the medium term.
According to the Medium-Term Fiscal Framework 2023-2025, the government plans to reduce its fiscal deficit gradually to 3.2% by the end of 2025, which would take the 2023-2025 average to 4.1% of GDP.
“We expect total government debt to increase over the coming years as the country continues to run budget deficits,” it said. – Bernama
