KUALA LUMPUR, Feb 28 — Malaysia’s economic growth is likely to moderate in 2023 with the Gross Domestic Product (GDP) expected to grow 4.1 per cent after an exceptional 8.7 per cent expansion in 2022, said Moody’s Analytics.
Its economist Denise Cheok said the outlook is, however, highly uncertain and tax revenue might undershoot the government’s target if GDP growth comes in lower than expected.
“The global economic slowdown is a key risk and will temper demand for Malaysia’s exports. Uncertainty also surrounds the economic trajectory of China, which is Malaysia’s second-largest export partner and a key destination for its commodities and electronics.
“The potential recovery of consumer demand in China is a bright spot, but the transition away from the zero-Covid policy in China will be bumpy as households weather the uptick in Covid-19 infections,” she said.
Cheok said another headwind is the expected reduction in revenue from state-owned oil company Petronas this year on the back of lower oil prices.
Moody’s Analytics has forecast Brent crude to average about US$90 per barrel this year, well off the high of US$114 per barrel in the middle of 2022. (US$1 = RM4.47)
Last Friday, Prime Minister Datuk Seri Anwar Ibrahim announced the revised Budget 2023, with a record RM388.1 billion allocation — RM289.1 billion for operating expenditure and RM99 billion for development spending.
“Despite bigger outlays, Malaysia aims to trim the budget deficit to five per cent of GDP from the 5.5 per cent outlined in the budget’s first iteration,” she noted.
Cheok said Budget 2023 lays out grand plans of pulling back the fiscal deficit while maintaining subsidies and slashing taxes for lower and middle-income groups.
“But details on how this will be achieved are scarce. It is unclear when a goods and services tax (GST) will be reintroduced, if at all, and how the government plans to embark on its path to rein in the ballooning government debt,“ she said.
She said the reintroduction of the GST would help the government make headway toward its goal of reining in the deficit.
However, Anwar in his Budget 2023 speech said there are no plans to implement wide-based consumption taxes, noting that prices are already high in some categories, including food.
Cheok said income tax makes up almost 40 per cent of government revenue; hence income tax on those in the higher income tax bracket, with annual earnings above RM230,000, is to be raised, but this is unlikely to make up for the tax cuts in other income groups.
Anwar announced that the tax base will be expanded by, among others, introducing a luxury goods tax and an excise duty on liquid or gel products containing nicotine used for e-cigarettes and vapes.