Medium-term fiscal framework projects overall fiscal deficit to average at 5% of GDP for 2022 to 2024

Medium-term fiscal framework projects overall fiscal deficit to average at 5% of GDP for 2022 to 2024
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KUALA LUMPUR (Oct 29): The Medium-Term Fiscal Framework (MTFF) for 2022 to 2024 projects the overall fiscal deficit to average at 5% of gross domestic product (GDP), representing a more gradual than initially projected fiscal consolidation trajectory.

The MTFF will guide the fiscal strategy of the country in the medium term. According to the 2021/22 Economic Report, the MTFF serves as a guide for budgetary planning by setting a three-year macro fiscal projection, including revenue and expenditure.

“Hence, the MTFF is an important tool for public finance management and operations to promote fiscal discipline, ensure effective and efficient spending and embark on institutional reforms,” it added.

For the 2022-2024 MTFF, it has been revised with a “more gradual fiscal consolidation” in mind, based on the assumption of nominal GDP growth averaging at 7.7%, average crude oil price at US$67 per barrel as well as average crude oil production of 580,000 barrels per day.

In the medium term, total revenue is projected at RM736 billion, representing 13.9% of GDP, which will largely come from non-petroleum revenue of an estimated RM600.7 billion, or 11.3% of GDP. Meanwhile, petroleum-related revenue is forecast at RM135.3 billion, or 2.6% of GDP.

“Efforts to enhance the revenue base will be guided by the Medium Term Revenue Strategy (MTRS) that outlines the mobilisation stages of revenue measures, review of tax legislation and modernisation of revenue administration,” said the report.

In terms of expenditure, the total indicative expenditure ceiling for the 2022 to 2024 period, which includes the Covid-19 Fund, is estimated at RM999.9 billion or 18.9% of GDP. Operating expenditure allocation is estimated at RM726.9 billion, or 13.7% of GDP, while development expenditure is estimated at RM250 billion, or 4.7% of GDP.

The report added that in the 2021-2023 MTFF, the government projected fiscal consolidation to average at 4.5% of GDP over the three years. This was based on the assumption of steady economic recovery with real GDP between 4.5% and 5.5%, stable crude oil prices of around US$45 to US$55 per barrel and crude oil production of 580,000 barrels per day. Furthermore, total revenue was estimated at 14.7% of GDP and total expenditure was projected at 19.3% of GDP.

However with the prolonged Covid-19 pandemic, the additional fiscal injection as well as higher statutory debt ceiling were undertaken in order to stimulate economic recovery, noted the 2021/22 Economic Report.  

For more stories on the Economic Report 2021/2022, click here.

Joyce Goh