Malaysia’s 2023 Budget and the Upcoming General Election

ASEAN Rhythm | Economy | Southeast Asia

Government spending remains high compared to historical levels, but is declining from the highs of the COVID-19 pandemic.

Shortly before Prime Minister Ismail Sabri Yaakob called a new general elections, the Malaysian government published its budget for 2023. This is not unusual. The end of the year is when many countries in the region finalize their budgets; Indonesia, thailand, Y the philippines have approved or are in the process of approving their fiscal plans for 2023. But because the budget was approved just before the elections were called, some wonder if it could be part of a broader strategy for the ruling coalition in office , What Asia News Channel To put it bluntly, “woo intruders” at great expense.

In a way, all budgets do that to one degree or another. The purpose of public spending is to recycle taxes and other revenues into shared public and social goods, such as subsidies and infrastructure. The question is whether this budget spends more than it can afford or spends at historically high levels and in a way that is intended to increase votes. So what’s in Malaysia? budget 2023 And is it likely to have a big electoral impact?

At 372.34 billion ringgit (about $79 billion at current exchange rates), total spending is expected to decline by 3.4% from 2022. The deficit is expected to be 5.5% of GDP, the lowest since the start of the COVID-19 pandemic. 19 pandemic. Development spending, including some big infrastructure projects like the Trans Borneo Highway, is expected to get a 32 percent boost. Subsidies and social assistance will be reduced by 28.7 percent, but will remain at relatively high levels compared to previous years. The COVID-19 Special Fund, which was allocated RM37.7 billion in 2021, is being liquidated and those resources have been moved to other parts of the budget. Planners believe that the economy will grow between 4 and 5 percent in 2023.

At first glance, much of this seems reasonable enough. Spending remains elevated compared to historical levels, but is declining from its pandemic highs. We see the same thing in Indonesia’s proposed budget for 2023, with overall spending falling from 2022 levels but still high compared to 2019. That a lot of money is being shuffled into subsidies (especially energy subsidies) , both this year and in 2023, is also without great commotion. Countries around the world are doing their best to ease the burden imposed by high global energy prices. And Malaysia can do more than most.

This is because high oil prices are good for the government’s bottom line. Revenue increased in 2022 to RM 285.2 billion ($60 billion), an increase of 22% from the previous year. About a quarter of that comes from oil-related income, including large dividends paid by the state-owned oil and gas company Petronas. as i have written beforewhen Petronas wins it is a boon to state finances, and 2022 has been a banner year for many oil companies.

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2023 is not expected to be as good as oil prices are already falling, but next year still looks pretty solid. Coupled with modest but reasonable assumptions about 5 percent GDP growth, the government feels confident it can maintain expansionary fiscal spending while keeping the deficit in check. This is more or less what one would expect from an oil-exporting country like Malaysia with a medium-sized population. And if we are indeed headed for a global recession in 2023, increased government spending will help soften the blow.

Broadly speaking, the 2023 budget will recycle windfall revenue from high oil prices into subsidies to protect Malaysians from those same high prices. They are also taking advantage of the fiscal space created by these conditions to increase investment in development spending, such as infrastructure. This could very well appeal to some voters, and I’m sure there are incentives built into the budget designed to appeal to particular sectors of the electorate. But from a macro perspective, this budget and its spending expansion plans largely reflect the contemporary macro environment in Malaysia. And, election or no election, it is the least Malaysian voters should expect from their government in times of high oil prices.

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