Malaysia announces tighter 2023 budget as it warns of slowing growth

People dining at a restaurant in front of Petronas Twin Towers, in Kuala Lumpur, Malaysia. REUTERS/Lim Huey Teng/File photo

KUALA LUMPUR  – Malaysia on Friday unveiled a smaller budget for 2023, prioritizing fiscal discipline over expectations of populist measures, as it warned of a slowdown in the economy from rising global risks.

Prime Minister Ismail Sabri Yaakob’s administration had been expected to table a moderately expansionary budget in a bid to boost voter support after speculation that national polls would be held this year, earlier than a September 2023 deadline.

But Malaysia has been under pressure to rein in expenses and boost revenue as soaring commodity prices triggered record spending on subsidies this year.

In economic and fiscal outlook reports released ahead of the finance minister’s budget speech in parliament, the government said it was taking a cautious approach to a “challenging” 2023 due to geopolitical tensions, rising global inflation, tightening financial conditions, and supply chain disruptions.

“The 2023 budget aims to provide favorable conditions and ensure a balance between economic needs and fiscal consolidation,” Finance Minister Tengku Zafrul Aziz said in the fiscal outlook report.

Malaysia will develop appropriate policies to address any external shocks, he said.

In the reports, the government revised up its 2022 gross domestic product (GDP) forecast to 6.5-7 percent from a previous range of 5.3 percent to 6.3 percent, but expected growth to slow next year to 4-5 percent.

Strong domestic demand, new and ongoing infrastructure projects, and a vibrant services sector will offset some of the risks from the global slowdown, it said.

The government plans to spend 372.3 billion ringgit ($80.08 billion) in 2023, down from an estimated 385.3 billion ringgit this year, according to the reports.

Revenue was seen declining 4.4 percent to 272.6 billion ringgit in 2023, while the government’s fiscal deficit will likely narrow to 5.5 percent of GDP from a projected 5.8 percent this year, the reports said.

Malaysia said it was embarking on a review of public expenditure and a plan to reduce subsidy spending to targeted, vulnerable groups to consolidate its fiscal position.

“This is in line with the government’s commitment to maintain fiscal prudence and discipline in order to ensure fiscal sustainability in the long term,” it said.

Targeted subsidies will be gradually implemented in 2023, it said, adding that it expects to spend 42 billion ringgit for subsidies and social assistance next year.

($1 = 4.6490 ringgit)

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