• Economy expected to grow 5.5%-6.5% in 2022
• Domestic demand to expand 6.6% in 2022 driven by pent-up private consumption and higher public spending
• Inflation expected to normalize at 2.1% next year after 2021's 2.4%
• Unemployment rate seen improving to 4.0% in 2022
• Gross exports to expand to 1.5% in 2022
• Narrower current account surplus seen
• All economic sectors expected to expand in 2022 except mining
• Fiscal deficit narrows as better economy outlook in 2022

Economy expected to grow 5.5%-6.5% in 2022

Malaysia’s economy is projected to expand with growth between 5.5% and 6.5% in 2022 in tandem with the anticipated reopening of economies, normalisation in economic activities, better consumer sentiment, and business confidence. This expansion comes after a projected 2021 GDP growth of 3.0-4.0% (2020: -5.6%) as COVID-19 impacts limiting the country from experiencing a stronger growth.

Nevertheless, in the Economic Outlook 2021/2022 report, the Ministry of Finance (MoF) pointed out that the favourable outlook hinges on two major factors — the improvement in domestic demand and sustained performance in external demand. Overall, 2022 growth will be supported by significant improvement in global trade, stabilised commodity prices, containment of the pandemic, and gradual improvement in consumer and business sentiments.

The Finance Ministry, in its 2022 Fiscal Outlook and Federal Government Revenue Estimates report, has revised the Medium-Term Fiscal Framework (MTFF) 2022-2024 on account of the impact caused by the COVID-19 crisis. The MTFF is an important tool for fiscal policy management, it promotes fiscal discipline, ensures appropriate resource allocation and forecast beyond the annual planning horizon.

The updated macroeconomic and fiscal assumptions have been revised to include real GDP growth averaging 5.5%, crude oil prices at USD67 per barrel and crude oil production of 580,000 barrels per day.

In the medium-term period, the ministry said total revenue is expected to reach RM736.0bn or 13.9% of GDP, contributed mainly from non-petroleum revenue, which is forecast at RM600.7bn or 11.3% of GDP. Petroleum-related revenue is projected at RM135.3bn or 2.6% of GDP.

According to the report, the government will be guided by Medium Term Revenue Strategy (MTRS) that outlines the mobilisation stage of revenue measures, review of tax legislation and modernisation of revenue administration.

The total indicative ceiling for the three-year expenditure is estimated at RM999.9bn or 18.9% of GDP, including swift implementation of economic stimulus packages and recovery plan under the COVID-19 Fund. It said operating expenditure allocations are projected at RM726.9bn or 13.7% of GDP, while development expenditure is RM250.0bn or 4.7% of GDP. This indicative ceiling provides a comprehensive guide to ministries and agencies in budget planning, to ensure a more targeted and disciplined fiscal management. The overall fiscal deficit is targeted to average 5.0% of GDP for the three years, while Federal Government debt is expected to increase, albeit at a manageable level.

Source: BIMB Securities Research - 29 Oct 2021