Anwar says the revised 12MP for the 2021 to 2025 period would see the country’s gross domestic product (GDP) growing between 5% and 6%, up from the original target of 4.5% to 5.5% during the five-year plan.
PETALING JAYA: The 12th Malaysia Plan (12MP) mid-term review may have set a positive tone to move the country up the value chain. However, some analysts regard the revised targets as “ambitious” and “challenging” given the prevailing uncertainties in the global economy.
As revealed by Prime Minister Datuk Seri Anwar Ibrahim on Monday, the revised 12MP for the 2021 to 2025 period would expect the country’s gross domestic product (GDP) to grow between 5% and 6%, up from the original target of 4.5% to 5.5% during the five-year plan.
It means the country’s GDP growth is expected to accelerate between 5% and 5.5% for the remaining period of the 12MP from 2023 to 2025. The government anticipated the growth to be largely driven by domestic demand.
Kenanga Research said the adjusted growth target for the remainder of the 12MP was “somewhat ambitious” and “challenging”.
“This perspective also takes into account the normalisation effect, noting that the substantial growth observed in 2021 and 2022 was primarily attributed to a lower base effect, pandemic-related stimulus, and the surge in pent-up demand when the economy fully reopened in April 2022,” the research house said in its report yesterday.
In comparison, the research house’s GDP growth projection of 3.5% to 4% for 2023 and 4.9% for 2024 would bring about an average growth of 4.3% for the two years.
“Assuming growth would exceed 5% in 2025, the average three-year growth will still be significantly lower than the revised 12MP target,” it explained.
Socio-Economic Research Centre executive director Lee Heng Guie said the revised GDP growth target appeared to be on the high side.
He expected GDP growth to slow to 3.8% this year from 8.7% in 2022, weighed by falling exports and the normalisation of consumer spending.
“Hence, it means that real GDP growth would have to expand by between 4.5% and 5.8% annually in the 2024 to 2025 period, which could prove challenging given the projected moderate global growth in 2024,” Lee explained.
Similarly, TA Research also perceived the revised 12MP target as “a little bit ambitious”. “Assuming a mid-point target of 4.5% in 2023, in order to achieve that 5% to 5.5% for 2023 to 2025, real GDP should hit 5.5% for 2024 and at least 6% for 2025. Our medium-term forecast is slightly lower than that,” it pointed out in its report.
“While it is too early to tell, risks remain to the downside especially with major concerns on the deceleration of growth in China and rapid reverse of tightening monetary policy in major central banks globally,” it explained.
Further, TA Research noted most multilateral agencies such as the International Monetary Fund and the World Bank were lowering their targets for 2024.
The government had projected 2023 GDP to expand close to the lower end of the 4% to 5% range, while TA Research expected growth to be at 4.2% this year.
Meanwhile, Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the revised 12MP had a positive impact on the country’s medium-term growth.
He said the government’s decision to increase the development expenditure (DE) ceiling to RM415bil from RM400bil under the 12MP would benefit not only the construction sector, but also the manufacturing and services sectors. This would have a positive spillover impact on the economy. “In a nutshell, there is an element of adding economic stimulus, while at the same time, keeping a close tab on fiscal position,” he said, alluding to the government’s commitment to keep the fiscal deficit targets of 3% to 3.5% of GDP in 2025.
MIDF Research said the construction sector appeared to be the clear beneficiary of the 12MP.
“Construction seems to be given prominence this time around,” it said.
It added the plan could entail more infrastructure works and it expected the upcoming projects to provide a boost to order books of construction companies.
According to RHB Research, the higher DE ceiling for 12MP was mildly positive for the construction sector.
The brokerage noted that the actual DE spent over the 2021 to 2022 was only RM135.9bil, implying an additional RM279.1bil for the remaining three years of the 12MP.
There were 11 major infrastructure projects mentioned in the review such as the remaining phase 1B of the Sabah Pan Borneo Highway, Penang Light Rail Transit and phase two of Sabah-Sarawak Link Road. It noted there was no explicit mention of the Mass Rapid Transit 3 or MRT3 project. “The 12MP review has long-term positive implications for the evolution of Malaysia’s economy, although much would depend on execution,” it said, adding that it expected more clarity on short-term initiatives to be revealed in Budget 2024 on Oct 13.
Lee said the resource allocation must also address the fundamental issues of effective governance of public spending and timely implementation of projects so that the economic multiplier effects will be felt.
“The government can consider improving the cost-effectiveness of administration and efficiency in the implementation of projects in addition to cost savings. Mandatory cost-effectiveness could be introduced for public sector projects, and political programmes could be evaluated ex-ante more often,” he said.
CGS-CIMB Research said the review showed that the government was attempting to strike a right balance between the various priorities for growth.
The initiative, it said, should provide enough clarity for investors to observe Malaysia’s medium-term potential.
“There were no major surprises announcement-wise as the 12MP encapsulated not only the Ekonomi Madani framework, but also the New Industrial Masterplan and the National Energy Transition Roadmap released just a few weeks ago.
“However, we note a wider interest in developing the sectors of halal industry, tourism, smart farming, and global services,” it said.
It said the review also revealed a greater commitment to address issues of governance with several legislative changes planned such as the Political Donations Act, Government Procurement Act, and Fiscal Responsibility Act.
On the higher DE, CGS-CIMB Research said that was not a surprise, as this was likely to take into account the higher inflation rate rather than any material changes in the spending direction.
For now, the brokerage maintained its GDP growth forecasts of 4% for 2023 and 4.6% for 2024.
The review had also introduced a higher gross national income per capita target by 2025 at RM61,000, up from RM57,882.
“This target underscores the government’s ambition to elevate Malaysia to a high-income nation status by 2025,” Kenanga Research said, adding that the new target would surpass the World Bank’s minimum income threshold for a high-income nation at US$13,845.
“At the rate the economy is growing and considering potential threats from the external sector that could impede growth outlook in the near term, we believe the country would still be able achieve high-income status by 2025.
“This is in line with the World Bank’s projection that the high-income target would be achieved between 2024 and 2028,” it pointed out.
Kenanga Research noted Malaysia’s per capita income stood at RM52,968 in 2022, a significant increase from RM46,253 in 2021.
