• The government, in an effort to push economic momentum and boost resilience, produce another expansionary budget, pushing the 2023 fiscal budget allocation to RM372.3bn, 12.1% higher YoY. This is the biggest budget allocation which is respectable given that we just emerged from one of the worst crises, the COVID-19 pandemic.

• Development expenditure is the ‘biggest winner’ following a 32.3% YoY increase in allocation to RM95bn, as the government ramp up efforts to boost economic activity as the country enters its 3rd year of 12th Malaysia Plan (12MP).

• It will be a 4.3% smaller allocation for operating expenditure consistent with a much-improved pandemic condition as the country successfully transitioned into COVID-19 endemicity phase.

• Budget deficit is declining or by 30 basis points, as expected, to 5.5%-ofGDP in line with a much-improved COVID-19 condition and consistent with the target set under the Medium-Term Fiscal Framework (MTFF).

• Budget 2023 contains various growth initiatives that will lift growth momentum to 4.0-5.0% in 2023 (PIVB 2023F: +4.0-4.5%), mean reverting and consistent with our historical average.

• An increase of RM100k investment limit for ASB and ASN and a higher annual cap for voluntary savings in EPF from RM60k to RM100k will provide cheer to the equity market.

• Tax relief for costs incurred in initial public offering (IPO) exercises on the ACE and LEAP Markets until the year of assessment 2025 and expansion of tax cuts arising from listing costs for tech-related companies on the Main Market of Bursa Malaysia – will be reasons to be sanguine on outlook.

• Our FBMKLCI year end 2022 target has been cut to 1,560-points however as we assigned a lower PER given challenging external conditions particularly the aggressive US interest rate tightening which shows no sign of slowing down, sharp and most likely persistent until year end if not in 1Q23. The benchmark index remains susceptible to external headwinds including global inflation risks, prolong global supply disruption, China strict COVID-19 lockdown policies and a longer-than-expected disruption from Russia transgression into Ukraine.

Budget Summary

Budget 2023 that was revealed last Friday was comprehensive and contained large goodies especially for the man-on-the-street, low to mid-income (B40, M40) and youth, not surprising given that parliament dissolution that could be very close. Development expenditure (DE) was arguably the biggest winner given the largest increase in allocation to RM95bn, 32.3% higher YoY, as the government ramp up activity as we enter into the 3rd year of 12th Malaysia Plan (12MP). We propose two scenarios for parliament dissolution including 1) right after the tabling of Budget 2023 – hence, in October or 2) in April/May next year (2023) though most chatter in the main stream media predict the former instead of the latter. Given the aftermath of a prolonged pandemic, it is not surprising that the budget is aimed at boosting Malaysia’s resilience and sustainability with an eye to reduce the budget deficit to a more manageable level and appealing to investors. Riding on a theme ‘Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia’, Budget 2023 will push the efforts to attain the targets in the 12th Malaysia Plan (12MP) given Budget 2023 is also the half way mark of 12MP (2021-2025). Having said that Budget 2023 is set to driven by the spirit of ‘3R’ namely ‘Responsive, Responsible and Reformist’ that will catalyse reform, drive socio-economic activities and the national development agenda.

There is no time to waste given that 12MP has lost 2 precious years due to COVID-19 pandemic and the expansionary fiscal Budget 2023 (note: excluding COVID-19 Fund) will be the apparatus to deliver that. Budget 2023 contains various growth initiatives and pro-cyclical measures to boost the engine of growth particularly measures to encourage consumption and investment activities. These initiatives will push growth momentum to accelerate to +4.0- 5.0% in 2023 (BIMB Securities 2023F: +4.0-4.5%%), a no-small-feat considering the damage brought by COVID-19 and the limited fiscal capability amid a stretched government coffers due to the huge COVID-19 expenditure (2020- 2023F: RM109.5bn). Budget 2023 will see a 12.1% bigger allocation to RM372.3bn (2022E: RM332 bn; +3.1% YoY), at the back of a 4.3% drop in operating expenditure (opex) and a 32.3% jump in DE which will keep the fiscal deficit in-check to 5.5%-of-GDP (2022E: 5.8%), a gradual improvement in line with the government’s commitment under the Medium-Term Fiscal Framework (MTFF).

Source: BIMB Securities Research - 10 Oct 2022