PETALING JAYA: Despite the government’s target for a narrower fiscal deficit of 4.3% of gross domestic product (GDP) under Budget 2024, its debt position may worsen.
Economists and analysts said while the government’s efforts to lower the fiscal deficit is a welcome move, it could, however, worsen the debt metrics of the country.
Under Budget 2024, the government aims for a narrower fiscal deficit of 4.3%, an improvement against the 2023 estimate of 5%, and somewhat a mid-point towards the 3.5% targeted for 2025 as stated in the 12th Malaysia Plan mid-term review.
Economists at CGS-CIMB Research agree that other debt metrics could worsen as government debt is projected to rise to 64% of GDP (from 61.9% in 2023), while debt service charges could rise to 15.9% of revenue (2023: 15%).
On a more positive note, the research house said the Parliament’s passing of the Fiscal Responsibility Act (FRA) days before the budget presentation would somewhat improve the medium-term fiscal outlook.
The four major targets include capping government guarantees at 25% of GDP, development expenditure of at least 3% of GDP, fiscal deficit cap of 3% in three to five years, and a lower debt ceiling of 60% of GDP.
The research house noted that there is continued interest in the government improving the fiscal situation with the deficit targeted at 3.5% in 2025 and 3% in 2026, as well as the passing of the FRA.
However, it said that over the longer term, issues on low government revenue collection still need to be addressed.
“The increase in service tax from 6% to 8% may provide some breather in the near term, but we believe this is insufficient to address the long-term structural debt problem.
“As such, we still believe the implementation of the goods and services tax could be the long-term solution,” CGS-CIMB Research said.
On the economic outlook, the research house said it anticipates a better global environment ahead.
The government posted a slightly more upbeat range of forecast for 2024 GDP growth at 4% to 5% year-on-year versus “approximate 4%” for 2023.
Authorities are optimistic about economic resiliency, noting that support would be in the form of robust domestic demand, reflecting the implementation of various measures such as the Madani Economy, New Industrial Masterplan 2030, National Energy Transition Roadmap and the review of the 12th Malaysia Plan.
On the balance of payments, the government is projecting a narrower current account surplus of 3.2% of gross national income (GNI) in 2024 versus 3.4% of GNI in 2023.
Meanwhile, TA Research said the country’s pessimism on the economic front is expected to continue in 2024, amid persistent challenges in the external environment.
It said the local economy is forecast to grow within the range of 4% to 5% next year, putting 4.5% as the mid-point growth.
“Our in-house growth projection of 5% next year lies at the highest range.
“The target is also lower than the 5% to 5.5% growth target for 2023-2025 as outlined in the mid-term review of the 12MP,” TA Research said.
It said risks remain largely to the downside, largely coming from the external side.
“Being an open economy, Malaysia will be affected by slow growth in advanced economies, volatile financial market and prolonged geopolitical tensions.
“Adding to concerns are risks related to China, volatile commodity prices, geopolitical fragmentation and a resurgence in inflation,” it added.
However, TA Research said the robust domestic demand would effectively offset the challenges posed by the moderate global growth.
