Maybank Investment Banking Group (Maybank IBG) has said that it foresees the upcoming Budget 2023 to have a less expansionary fiscal policy. It is also expected to have a lower budget deficit to gross domestic product (GDP) of 5% amid a fairly limited fiscal space.

According to the chief economist at Maybank IBG, Suhaimi Ilias, the government will also likely begin medium-term fiscal consolidation, which serves to reduce deficits and the accumulation of debt. Specifically, this round of medium-term fiscal consolidation will be in line with the aim to lower the budget deficit from between 6% and 6.5% of GDP from 2020, to between 3% and 3.5% by 2025 – as per the 12^th Malaysia Plan (12MP).

“I think the process must begin in 2023, the midpoint of the 12MP, and this is also reasonable from the perspective that narrative by the government on fiscal reform and shifting subsidies from current blanket subsidies to targeted subsidies,” said Suhaimi.

Suhaimi further commented that it is also crucial to carry out medium-term fiscal consolidation because it would allow the government to have more sustainable resources of revenue. In turn, they will not need to rely on volatile commodity-related revenue as well as one-off tax revenue, such as Cukai Makmur (windfall/prosperity tax). Briefly, Cukai Makmur is a one-off 33% tax that is charged on companies that profit more than RM100 million for the year of assessment 2022 (YA2022).

Meanwhile, the head of equity research, Anand Pathmakanthan predicted that Malaysia will see growth in rebounding post-Cukai Makmur. This is alongside sustained economic recovery for 2023, with a 12.4% earning expansion for the FTSE Bursa Malaysia KLCI (FBM KLCI). Commodity sectors – such as oil and gas, as well as palm oil – too, will enjoy sustained growth to eventually become winners in an inflationary environment.

That said, margin pressures are also expected to develop across multiple sectors due to rising cost pressures. To explain, margin pressure is the risk of negative effects that certain elements may have on a company’s profitability margins. Ultimately, Pathmakanthan noted that these forecasts will inform Maybank IBG’s current “overweight”, “neutral”, and “underweight” calls on selected sectors.

(Source: The Edge Markets)

• TAGS:
• 12th Malaysia Plan (12MP)
• Anand Pathmakanthan
• Budget 2023
• Cukai Makmur
• FTSE Bursa Malaysia (FBM KLCI)
• Maybank
• Maybank Investment Banking Group (Maybank IBG)
• Suhaimi Ilias
• Windfall Tax