Budget 2024 is the first budget after the unveiling of the National Energy Transition Roadmap (NETR), New Industrial Master Plan (NIMP) and 12th Malaysia Plan Mid-Term Review (12MP) which are set shape the growth trajectory of the country going forward in the context of increasing economic complexity and fulfilling our net zero journey along the same tangent. On the back of challenging global economic environment, expansionary budget that remains in place to support the country’s growth agenda and at the same time, improving revenue stream is equally critical to ensure sustainable sovereign creditworthiness. In this regard, we welcome the government’s short-term and mid-term commitment of bringing down the fiscal deficit, as guided via the recent 12MP Review.
Fiscal position is set to improve
Fiscal deficit to GDP ratio is envisaged to narrow to 4.3% in 2024 and financing of the deficit should continue to be via domestic debt capital market, thanks to growing investible funds locally. This minimises the risk of excessive exposure to FX volatility in the government’s balance sheet.
Supporting the People and creating viable business opportunities
Cash handouts offered to ensure sustainable private consumption while elevated level of development expenditure to create business opportunities, hence benefiting SMEs along the value chain as well. Moves to support credit flows should also bode well for business communities as far as cash flows are concerned.
ESG agenda very much in place
Embracing Environmental, Social and Governance (ESG) is inevitable as this is becoming the global mega trend, hence it is not a choice, but a must. Budget 2024 that includes measures in supporting EVs ownership and drive toward zero carbon are testament to the government’s strategies on embedding ESG into the economy as spelt out in the NETR, NIMP and 12MP.
GDP growth is set at 4.0% - 5.0%
GDP growth is expected at 4.0% - 5.0% in 2024 based on the Ministry of Finance (MOF) forecast, underpinned by domestic demand and impending recovery in exports. The downside risk to growth, however, remains and is largely seen coming from external sources with regards to the major central banks monetary policy direction, the shape of China’s recovery in the coming months, trade tensions & protectionism measures and geopolitical uncertainties.
Higher revenue collection expected in 2024 – Revenue is expected to be 1.5% higher at RM307.6 billion with 79.2% contribution coming from tax revenue while the remaining 20.8% is to be contributed from non-tax revenue. Key highlight of government revenue in Budget 2024 are as follows:
Higher operating expenditure in 2024 – RM303.8 billion is allocated for operating expenditure, about 1.2% higher than RM300.1 billion budgeted in 2023. Key highlights of operating expenditure are as follows:
Development expenditure of RM90.0 billion - As indicated during the recent 12th Malaysia Plan Mid-Term Review (12MP), allocation for development expenditure remain somewhat robust and this should work well in sustaining economic growth going into 2024. Key highlights of operating expenditure are as follows:
Government fiscal position – Fiscal deficit of GDP ratio is estimated at 5.0% in 2023, and it sets the tone towards long-term fiscal consolidation journey as well as 3.0% - 3.5% target under the 12MP. Going into 2024, fiscal deficit to GDP ratio is seen to narrow further to 4.3% on the back of RM85.4 billion budget shortfall and this is to be fully financed via local currency sovereign bond issuances. We analyse the fiscal consolidation path the country had embarked earlier on during the post-GFC period and found that fiscal deficit narrowed from a high of 6.7% in 2009 to 3.0% in 2017 with GST regime came into effect in 2015. Mapping this finding to the present scenario where our fiscal deficit peaked at 6.4% at the heights of COVID-induced recession, fiscal deficit may fall to 2.7% by 2029 should the same trajectory is replicated.
Source: AmInvest Research - 16 Oct 2023
Created by AmInvest | Aug 30, 2024
Created by AmInvest | Aug 30, 2024
Created by AmInvest | Aug 30, 2024
Created by AmInvest | Aug 30, 2024