KUALA LUMPUR: BIMB Securities Sdn Bhd foresees a lower fiscal deficit of 3.5 per cent in line with the 12th Malaysia Plan Mid-term Review (12MP MTR) for Budget 2025.

Under the 12MP MTR, Malaysia's fiscal balance position is forecast to turn lower at a range of 3.5-3.0 per cent by 2025, BIMB Securities said in a report today, adding that the reduction is highly possible with a lower development expenditure (DevEx)

"After registering more than RM90 billion of DevEx in the past two years, we expect the DevEx at RM78.3 billion in 2025," it said.

It said the government had initiated measures to reduce operating expenditure (OpEx) via subsidy rationalisation initiatives, among other measures, but the RON95 subsidy rationalisation timeline, which represents the bulk of total subsidies, remains uncertain.

"We believe any change in the petrol subsidy is sensitive especially affecting cost of living and inflationary pressures.

"On the flip side, there are upside pressures on the OpEx, especially with the civil servants salary hike announced recently," it said.

Reducing OpEx is one way to address the fiscal deficit but this poses a challenge for the government, while limiting DevEx could affect overall economic growth in the medium and long term.

Nonetheless, it does not expect a new consumption tax in the upcoming Budget 2025.

"Since the goods and services tax bill was repealed in 2018, a new consumption tax bill needs to be tabled in the Parliament," the report said, adding that this will take some time to implement.

According to BIMB Securities, Malaysia's fiscal deficit is projected to be lower than 2.0 per cent under four potential scenarios: no new consumption tax and partial reduction of fuel subsidy; no new consumption tax and full reduction of fuel subsidy; new consumption tax while RON95 subsidy remains status quo; and new consumption tax with full reduction of fuel subsidy.

The report said even if fuel subsidy were to remain, "5.0 per cent of consumption tax will improve government revenue by RM16 billion and lower the fiscal deficit to 2.3 per cent," it said.

It said Budget 2025 is expected to continue addressing both macroeconomic and microeconomic issues, provide direct cash support for vulnerable groups, address education and healthcare challenges, and offer incentives for affordable housing and first-time homebuyers.

With the launch of locally-made electric vehicles (EVs) expected in 2025, BIMB Securities anticipates that Budget 2025 will include specific cash rebates to improve the EV share in Malaysia's passenger car market.

"Apart from that, fiscal support, and injection for the New Industrial Master Plan 2030 (NIMP 2030) and the National Energy Transition Roadmap (NETR) projects will continue and be expanded," it said.

BIMB Securities also believes Budget 2025 will detail ongoing projects outlined in the Public-Private Partnership Master Plan 2030 (PIKAS 2030), while details of the potential projects will be mentioned in the upcoming 13th Malaysia Plan (13MP) and future fiscal policies.

PIKAS 2030, which features 37 ongoing projects and 41 potential projects, is set to keep construction players busy over the next decade.

"Development of the high-speed rail, Melaka International Aero-City Hub, and the Kuantan-Singapore Expressway are among key potential projects after 2025 which we believe will impact construction and Malaysia's gross domestic product," it added.