Will The Expansionary 2022 Budget Deliver?

It is another year of expansionary 2022 Budget to underpin post the COVID-19 pandemic recovery.

The 2022 Budget’s total allocation of RM332.1 billion or 20.3% of GDP marks a new record high level, an increase of 3.6% from the revised Budget 2021’s RM320.6 billion. Development expenditure is budgeted to increase strongly by 21.9% to RM75.6 billion in 2022 (RM62.0 billion in 2021), mainly for the transport, education and training, housing, energy and public utilities and environment as well as security sector.

It is questionable whether the Ministries and agencies have the capacity to effectively implement and disburse the record high level of expenditure. Past records have consistently shown a shortfall in expenditure of about 8-10% in 2020-2021; 11-16% in 2013-2016 due to weak execution. Expansionary spending will not necessarily lead to a positive impact on economic output and income growth if the multiplier effect is restrained by inefficiencies, leakages, implementation delays and cost overrun.

The 2022 Budget deficit target is set at RM97.5 billion or 6.0% GDP, down from estimated RM98.8 billion (6.5% of GDP) in 2021. After taking into account net revenue gain of RM6.2 billion arising from the proposed Budget measures, overall deficit will be lower at 5.6% of GDP in 2022. Malaysia had incurred uninterrupted 25 years of fiscal deficit since 1998.

We expect the task of budget deficit repairs to begin after the economy is being revived on stronger footing. As guided by the 2022-2024 Medium-Term Fiscal Framework, the fiscal consolidation trajectory will be gradual, with the overall fiscal deficit averaging 5% of GDP in 2022-2024, which implies that 1.5%-2.0% pts reduction to meet 12th Malaysia Plan’s fiscal deficit target of between -3.0% and -3.5% of GDP in 2025.