KUALA LUMPUR: Malaysia may not face sterner fiscal challenges in 2023 than 2022 as government coffers receive a huge boost from higher commodity prices, thus easing the efforts to tame compounding inflation issue and budget deficit, economists said.
Rising prices of key commodities particularly oil would be a boon for Malaysia's 2023 Budget, they said.
Juwai IQI global chief economist Shan Saeed said higher commodity prices were beneficial for the government in 2022-2023 to boost the fiscal side of its balance sheet.
Shan said with an improved balance sheet in hand, the government was expected to continue infrastructure spending and undertaking expansionary fiscal policy to fuel the economy.
"Presently, the government looks totally committed to providing relief to the masses and protecting them from inflationary pressure. I believe the government is in a good position to uplift the masses and provide structural balance in order to maintain macroeconomic stability," he told the New Straits Times.
Malaysia's budget deficit is expected to remain at 6.0 per cent in 2022, with its debt-to-gross development value (GDP) ratio currently standing at 60 per cent, well below the ceiling of 65 per cent.
Malaysia is one of the two markets in Asia to have revised their 2022 real GDP growth forecasts on the back of higher commodity prices due to the geopolitical tension.
The country's GDP is projected to expand 6.1 per cent in 2022, 5 per cent in 2023 and 4.5 per cent in 2024, a robust achievement in an era of slower global growth.
Putra Business School economic analyst Associate Professor Dr Ahmed Razman Abdul Latiff said the government can depend on the expected continuing growth of its economy to provide additional revenues.
Ahmed Razman said higher government revenue should give the country more room for fiscal maneuvering, especially with the higher commodity prices.
"Higher commodity prices will result in higher dividend contribution by Petroliam Nasional Bhd (Petronas), expanding export volume and continuation of prosperity tax for next year.
"This will reduce pressure on its deficit and ensure that affected groups of households and local businesses will not be forgotten in terms of financial and non-financial assistance and support," he added.
Boosted by the commodity boom, Petronas reported a 140 per cent year-on-year (yoy) jump in net profit to RM23 billion for its second quarter of (Q2) 2022, from RM9.6 billion last year, as revenue climbed 63.4 per cent yoy to RM93.3 billion from RM57.1 billion.
This prompted the oil firm to double its dividend payout to RM50 billion this year, the highest since 2019, when the group declared RM54 billion.
Meanwhile, Bank Islam chief economist Firdaos Rosli said higher commodity prices were buoying the nation's export receipts and government revenues.
Thus, Firdaos does not think the government will face similar fiscal challenges in 2023 as in 2022.
"I believe that the policy priority this year is to ensure that growth in 2022 will be much better than last year's amid policy normalisation. Much of government intervention today is about suppressing supply-side pressures on the economy so the demand-side would naturally grow as the economy reopens post-lockdowns," he said.
However, Firdaos said 2023 would be the year for the government to plant the seeds for future growth, and less so about combating inflation as it was today.
"It is also possible that inflation will not run as hot next year, compared to 2022, because of the gradual recovery in the labour market and recessionary pressures in advanced economies such as the United States and Europe," he added.
It was reported that Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said government subsidy policies had kept Malaysia's inflation rate in check.
Although Malaysian inflation rose to 4.4 per cent in July, well above the target range of 2.0-3.0 per cent, it is relatively moderate compared with other Southeast Asian countries.
The 2023 Budget would be tabled on Oct 7, instead of Oct 28 as previously scheduled, Minister in the Prime Minister's Department Datuk Seri Wan Junaidi Tuanku Jaafar said recently.