KUALA LUMPUR, Oct 30 — Following the expansionary fiscal policy to support economic growth, the fiscal deficit projected in Budget 2022 would be at RM97.5 billion, said AmBank Group.

It said this translates to a fiscal deficit of six per cent of the gross domestic product (GDP) — lower than the 6.5 per cent — 7.0 per cent projected for 2021.

In line with the gradual reopening of the economy, the expansionary fiscal policy under Budget 2022 had focused on recovery, resilience, rebuilding and reforms.

"The focus now is on the fiscal reforms via the Medium-Term Fiscal Projection (MTFP), Medium-Term Revenue Strategy (MTRS), and Fiscal Responsibility Act (FRA) to manage sovereign credit rating risk.

"With the government being unable to address the fiscal situation at the moment, there is a need to design the medium-term narrative and fiscal transparency to address the worries of rating agencies.

"To this end, a rolling three-year projection would act as a solid guide and show the government’s commitment in addressing fiscal consolidation issues, reforms, and transparency,” it said in a note today.

AmBank said in view of the tax revenue conundrum, the statutory debt limit, namely the Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII) and Malaysian Islamic Treasury Bills (MITB) was raised to 65 per cent of the GDP from 60 per cent previously.

This would mean that the government’s borrowing ability would be around RM140 billion-RM150 billion for 2022.

It noted that one of the key points of Budget 2022 is the 22.5 per cent increase in gross development expenditure to RM75 billion, which would benefit construction and infrastructure activities as well as trade and industry.

It said the headline inflation projected under Budget 2022 is at 2.1 per cent, much lower than Ambank’s projection of 2.6-2.8 per cent.

However, there are fears that inflation could be much higher than expected.

"Should the headline inflation rise, it would result in higher underlying inflation that can erode disposable income and demand from the falling purchasing power, and will eventually cause knock-on effects on business activities,” it said.

AmBank forecasted the GDP to grow between 5.4 per cent and 6.0 per cent next year, noting that Budget 2022 projected GDP growth to be at 5.5 per cent — 6.5 per cent.

As for 2021, it had lowered its GDP growth outlook to 3.0 per cent — 3.5 per cent from 5.5 per cent — 6.0 per cent previously, and noted that Budget 2022 projected the domestic economy to grow around 3.0 per cent — 4.0 per cent.

Strong growth for agriculture

Moving forward, AmBank expects to see strong agriculture growth, driven by higher palm oil output, the B20 biodiesel programme for transportation, and strong demand from China and India.

"The palm oil industry in 2021 is expected to experience a revenue loss of around RM11 billion — 12 billion due to labour shortages. However, the relaxation of cross-border foreign workers would support the industry favourably.

"Rubber, livestock and other agriculture products will also provide a positive impetus, and the government’s policy on the sustainability of agri-food and agri-commodity industries will further enhance the agriculture food security and benefit this sector,” it said.

Additionally, continued support for the broader-based recovery from export-led manufacturing activities would come from electrical and electronics as well as rubber and chemical-related products due to stricter global healthcare regulations and higher hygiene awareness.

The manufacturing sector’s activities would also be buoyed by the increase in gross development expenditure and accommodative monetary policy as well as non-monetary policies.

"Activities from construction/infrastructure as well as household-related products will add further positive impetus to this sector,” it said.

The sector is also expected to benefit from the increasing automation and digitalisation, as well as the potential ratification of the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, it added. — Bernama