With an eye on deficit, Malaysia’s Anwar tightens spending, taxes the rich

Malaysia’s Prime Minister and Finance Minister Anwar Ibrahim holds the 2023 Malaysia’s budget document at the Finance Ministry building, as he departs to the Parliament, in Putrajaya, Malaysia, Feb 24, 2023. REUTERS/Hasnoor Hussain

KUALA LUMPUR  – Malaysia on Friday unveiled a scaled-back spending plan for the year despite a sharply slowing economy as Prime Minister Anwar Ibrahim focuses on narrowing the budget deficit.

Three months into the job, Anwar is having to balance fiscal prudence with demands to address higher costs of living and a slowdown in Malaysia’s export-driven economy.

But Anwar, who is also finance minister, vowed to maintain subsidies and other government support for lower-income groups, and broaden the revenue base through taxes.

The fiscal deficit is expected to narrow to 5 percent of gross domestic product (GDP) this year from 5.6 percent last year, his government said in a report released alongside the budget presentation in parliament on Friday. The forecast is more ambitious than his predecessor’s earlier target of 5.5 percent.

Anwar’s government is tabling its first budget since being elected to power in November. His predecessor had presented a budget plan for 2023 in October, but it was not passed in parliament due to the election.

Anwar, in the report, said he will launch measures to strengthen the governance of public finances, and gradually reduce Malaysia’s debt.

“Various initiatives have been identified to address issues related to public finances, including exploring new sources of sustainable revenue and minimising leakages,” he said.

The prime minister warned that 2023 will be a challenging year for the economy, largely due to the global slowdown and prolonged geopolitical risks.

He forecast growth at about 4.5 percent in 2023 compared to 8.7% last year — the highest in 22 years. Malaysia had earlier forecast 2023 growth at 4 percent-5 percent.

Export growth is expected to moderate to 1.6 percent this year, down sharply from 25 percent last year. The current account surplus is seen at 55.2 billion ringgit.

Government expenditure this year is expected to total 386.1 billion ringgit ($87.11 billion), lower than last year’s preliminary spending estimate of 395.2 billion ringgit.

Revenue is expected to drop to 291.5 billion ringgit from 294.4 billion ringgit.

State oil company Petronas is expected to pay the government a dividend of 40 billion ringgit, higher than the previous government’s projection of 35 billion ringgit.

Federal government debt is seen at around 62 percent of gross domestic product in 2023, up from 60.4 percent last year, according to the report.

The government said it was committed to gradually reducing its debt to pre-pandemic levels, when the debt ceiling was at 55 percent. Malaysia’s borrowings increased during the COVID-19 pandemic as it launched a massive stimulus program to support the economy.

($1 = 4.4325 ringgit)