KUALA LUMPUR (Sept 27): The 12th Malaysia Plan (12MP) is a fine balance between finding new ways to spur economic growth while at the same time keeping government finances in check after battling one of the country’s biggest economic shock, said RHB Research.
“In this regard, the focus has been more emphasised towards expediting the 4th Industrial Revolution, enhancing the digital economy, raising SMEs contribution, as well as greater focus on renewable energy,” said RHB Research senior economist Ahmad Nazmi Idrus in a note issued after Prime Minister Datuk Seri Ismail Sabri Yaakob tabled the 12MP in the Dewan Rakyat on Monday.
Overall, the 12MP provides a clear direction of fiscal policy over the next five years, Ahmad Nazmi said, noting that the targets set are more pragmatic relative to the more ambitious 11MP initial target.
“Given the goal for income per capita to reach US$14,842 by 2025, it is likely that the economy will reach a high income status by 2024 at the earliest.
“This is four years later than what is stated in Vision 2020 assuming no other external disruptions along the way. Nevertheless, it is hoped that this plan will be a great starting point for a new national development strategy going forward namely the Shared Prosperity Vision 2030,” he said.
Ahmad Nazmi was nevertheless surprised that the development expenditure target is exceptionally high at RM400 billion for the next five years. He expects the development expenditure to continue to face implementation risks for much of 2022, with 2023 being the earliest to see an improvement in this category of government spending.
“That averages to about RM83 billion annually for 2022-2025 (2021 target is RM68.2 billion) and higher than the actual total expenditure under the 11MP at RM197 billion or RM39 billion annually on average. 50% of the development expenditure will be channelled to the six less developed states (namely Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis) focusing on infrastructure and poverty eradication programmes.
“Meanwhile, no new large scale projects are announced, including the Mass Rapid Transit Line 3 (MRT3), while the current ones such as the JB-Singapore Rapid Transit System, East Coast Rail Link (ECRL) and the Pan Borneo Highway are expected to continue,” he said.
Ahmad Nazmi also foresees that the government’s contribution in investment is projected to increase given the higher development expenditure.
“While the public investment under the 10MP and 11MP is relatively flat, the government projects public investment to grow by 2.6% year-on-year (y-o-y) annually in 12MP, aided by higher capital spending of non-financial public corporations (NFPCs). The investment will be largely in infrastructure, transport, utilities as well as the oil and gas industry,” he said.
Meanwhile, Ahmad Nazmi observed the impact of the 12MP on the 2022 economic outlook to be neutral.
“Over the long term, growth prospects could improve given the higher allocation for development expenditure, which could serve as a catalyst for stronger investment growth. For 2021, our gross domestic product (GDP) growth forecast is maintained at 5.4% y-o-y, while for 2022, growth is forecasted at 5.5% with risks tilted to the upside,” he said.
He added that the fiscal deficit target is projected at 3% to 3.5% of GDP by 2025, a marked improvement compared to current expected fiscal deficit target of 6.5% to 7% for 2021.
“In our view, the government’s goal for fiscal consolidation seems reasonable assuming no other negative external shock. Of course, this assumes that the fiscal environment is status quo.
“The government’s plan to reintroduce the goods and services tax is nowhere mentioned in the 12MP. Similarly, the capital gains tax and the windfall tax mulled by the government are also missing.
“Nevertheless, we did not rule this factor out. There could still be surprises in the Budget 2022 to be tabled in end-October,” he said.