Malaysia's 2023 economic outlook remains favourable

The outlook for Malaysia’s economic growth in 2023 remains favourable despite global headwinds such as inflationary pressures, economic uncertainties, and climate change, said Finance Minister Tengku Zafrul Abdul Aziz.

Nonetheless, he said the government will maintain high fiscal support and continue to adopt an expansionary fiscal stance to stimulate economic activity in sustaining the gross domestic product (GDP) growth momentum, which is forecast at between 4 and 5 percent in 2023.

He said Malaysia's responsive and responsible fiscal policies have consistently allowed the government to steer the nation’s economic development and overcome the recent Covid-19 challenges.

“Budget 2023 aims to provide favourable conditions and ensure a balance between economic needs and fiscal consolidation to facilitate economic growth, nurture the sustainability agenda, and promote the rakyat's well-being.

“This will be accomplished by maintaining the balance between prudent spending and investing for the future through a pragmatic fiscal framework,” Zafrul (above) said in the 2023 Fiscal Outlook and Federal Government Revenue Estimates report released today.

The minister said in order to strengthen Malaysia’s competitiveness and resilience, the government will prioritise recovery in 2022 and build the momentum for reforms in 2023.

He said the government's fiscal strategies are intended to strengthen recovery and facilitate reforms, with the objective of ushering the Malaysian Family towards sustainable socio-economic resilience.

“To that end, our policy responses are also aimed at encouraging collective responsibility at all levels of society to empower business communities, civil society, and the rakyat to collaborate in building a better and more sustainable Malaysia,” he said.

He said that the government will continue its fiscal consolidation efforts by improving fiscal governance, broadening the revenue base, and optimising expenditure.

Maintain economic resilience

Meanwhile, measures such as the Medium-Term Revenue Strategy and the Public Expenditure Review will increase fiscal space, while the upcoming Fiscal Responsibility Act will strengthen fiscal governance, allowing the government to implement counter-cyclical measures and maintain economic resilience, said the minister.

He added that the government will continue to provide policy support for growth and job creation for Malaysians, while also implementing reforms to ensure long-term fiscal sustainability.

“We are committed to keeping the federal government's statutory debt below the statutory limit of 65 percent of GDP and implementing debt management strategies to ensure adequate fiscal space to mitigate the impact of unexpected economic shocks or circumstances.

“Regardless of global challenges, the government is determined to consolidate its fiscal position by continuing to be responsive, responsible, and reformist in its policy approach,” said Tengku Zafrul.

READ MORE: Budget 2023: The big picture

Account surplus to rise

Meanwhile, the current account surplus is expected to rise to RM73.04 billion, constituting 4.2 percent of gross national income (GNI) in 2023 compared with the projection of RM50.8 billion or 3.1 percent of GNI in 2022.

According to the Economic Outlook 2023 report released today, the Ministry of Finance (MOF) said the goods account is projected to register a higher surplus of RM216.24 billion while the services account is expected to record a smaller deficit of RM52.60 billion in 2023.

The transport and travel accounts are expected to record a smaller deficit of RM33.9 billion and RM5.71 billion, respectively, while the other services account is projected to register a smaller deficit of RM12.98 billion in 2023.

The ministry said the primary income account is projected to register a higher deficit of RM70.37 billion, the investment income payments are expected to reach RM135.09 billion, and the compensation of employees is anticipated to record a higher deficit of RM9.06 billion next year.

Receipts in the secondary income account in 2023 are anticipated to increase to RM25.7 billion while payments are expected to grow to RM45.91 billion, leading to a higher deficit of RM20.23 billion.

The MOF said the current account surplus of the balance of payments narrowed to RM7.4 billion or 0.9 percent of GNI in the first half of 2022 due to a lower surplus in the goods account and higher deficit in the income account, albeit with smaller deficits in the services account.

“In the second half of the year, the current account surplus is projected to expand to RM43.4 billion or 5.3 percent of GNI following a wider surplus in the goods account despite a larger deficit in the services and income accounts.

“The performance is expected to continue until year-end with a narrowing current account surplus of RM50.8 billion or 3.1 percent of GNI,” it said.

According to the ministry, in 2022, the goods account is projected to register a higher surplus of RM195 billion, underpinned by increasing exports of manufactured, agriculture, and mining goods versus RM170.6 billion in 2021.

Increase in tourist arrivals

Meanwhile, the services account is expected to record a smaller deficit of RM59.7 billion following surging receipts in the travel account, albeit a widening deficit in the transport and other services accounts in 2022 compared to RM60.73 billion in 2021.

“The opening of international borders and transition towards the endemic phase have contributed to the increase in tourist arrivals, leading to a smaller deficit of RM10.8 billion in the travel account in 2022 compared to RM14.6 billion in 2021.

“In contrast, the transport account is projected to register a higher deficit of RM34.4 billion in 2022 versus RM32.5 billion in the previous year due to lower earnings gained by domestic companies from transactions involving airline passenger fares and freight charges.

“Similarly, the other services account is expected to register a wider deficit of RM14.5 billion in 2022 versus RM13.7 billion in the previous year, following increasing payments for manufacturing services on physical inputs owned by others, insurance and pension services, as well as personal, cultural, and recreational services,” it said.

The primary income account is projected to register a higher deficit of RM69.5 billion in 2022 versus RM41.6 billion in 2021 due to a wider deficit in investment income following higher income payments, partly due to the repatriation of profits and dividends by foreign investors in Malaysia.

The investment income payments are expected to reach RM133.7 billion in 2022. Correspondingly, the compensation of employees is anticipated to record a higher deficit of RM7.9 billion, attributed to an increase in the number of foreign professionals in Malaysia following the resumption of high-impact projects.

MOF said earnings in the secondary income account in 2022 are anticipated to increase to RM24.7 billion following a one-off receipt and higher remittances by Malaysians working abroad.

Payments in the secondary income account are expected to increase to RM39.6 billion, leading to a higher deficit of RM14.9 billion.

The increase in payments is owing to larger remittances by foreign workers from Bangladesh, India, Indonesia, Nepal, and the Philippines as economic activities normalise coupled with the revision of the minimum wage.

In the first half of 2022, the financial account registered a net inflow of RM30.7 billion compared with RM13 billion in 2021, attributed to the significantly higher net inflows in direct investment and other investment accounts, which more than offset net outflows in the portfolio and financial derivatives accounts.

Foreign direct investment registered a higher net inflow of RM41.7 billion while the net outflow of direct investment abroad by Malaysian companies recorded an increase to RM18.3 billion.

- Bernama

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