Malaysia: Budget 2022 – Cost of Reforms

Flash note on the Budget 2022 brought to you by UOB Malaysia's Senior Economist

Julia Goh, Senior Economist, UOB Malaysia shares about the Malaysian Budget 2022

The government unveiled an expansionary budget for 2022 to support the post-pandemic recovery, rebuild resilience, and catalyse economic reforms. It plans to spend RM233.5bn on operating expenses, RM75.6bn on development expenditure, and RM23bn on COVID-19 Fund, bringing total outlays to a record RM332.1bn or 20.3% of GDP in 2022 (2021F: RM320.6bn, 21.2% of GDP). Overall budget support aims to revive real GDP growth to 5.5%-6.5% in 2022 (2021F: 3.0%-4.0%) through domestic demand. The government’s buoyant growth outlook assumes the successful containment of the pandemic, effective vaccination implementation, and strong global economic prospects.

There was a balance of measures to support households and businesses, kick-start investments, and drive responsible growth. Key positives include extended sales tax waivers for purchase of passenger vehicles, full exemption of duties/sales tax/road tax for EVs, removal of RPGT for house sales from 6th year onwards, targeted wage subsidies, helping SMEs adopt low-carbon practices, financing schemes for businesses, and a special fund for strategic investments. However, a key negative was the one-off prosperity tax on high revenue-generating companies.

The government targets a narrower fiscal deficit of RM97.5bn or 6.0% of GDP in 2022 (2021F: RM98.8bn or 6.5%). It aims to further consolidate the medium-term fiscal position to 5.0% over 2022-2024. This signals commitment to be fiscally responsible yet ensure sufficient support for the economy. The statutory debt level is targeted at 63.4% of GDP in 2022, below the new debt ceiling of 65% until the end of 2022. Targets are ambitious while continued fiscal support and reforms have their own cost as the budget pivots towards a prosperity sharing path. Beyond 2022, further efforts to enhance spending efficiency, reduce leakages, optimise operating expenditure, and broaden the non-oil revenue base are crucial to preserving fiscal sustainability in the new norm.