KUALA LUMPUR (Oct 11): Fitch Solutions Country Risk and Industry Research has maintained its fiscal deficit forecast for Malaysia at 6.1% of gross domestic product (GDP) in 2022 and 5.6% of GDP in 2023.

In a note on Monday (Oct 10), the firm said that in 2022, it expects the deficit to come in wider than the government's revised projections due to lower revenue and economic growth projections.

“In 2023, our fiscal forecasts are similar to the government’s, but we note that risks to Malaysia’s fiscal outlook are weighted to the downside, given that the government may find it difficult to cut subsidies and social spending given upcoming elections,” it said.

Fitch Solutions maintained its forecasts for Malaysia’s federal government deficit as a share of GDP to come in at 6.1% in 2022 and 5.6% in 2023.

“This implies that we expect the budget shortfall to come in wider than the government’s latest projections for 2022, but roughly similar for 2023.

“On Oct 7, Malaysia unveiled a slightly leaner budget of RM372.3 billion for 2023, as compared with the revised estimate of RM385.3 billion for 2022,” it said.

The firm said with revenue projected to come in at RM272.6 billion in 2023, the government expects to register a budget deficit of RM99.1 billion, equivalent to 5.5% of GDP, smaller than the revised deficit projection of 5.8% of GDP in 2022.

“In 2022, we expect the budget deficit to come in slightly wider than the government’s revised projections of 5.8% due to lower revenue and economic growth forecasts.

“In January-August, the federal government collected RM173.3 billion in revenue, amounting to only 60.8% of its revised 2022 projection of RM285.2 billion.

“This implies that the government expects revenue collection to pick up over the remaining course of the year. In contrast, we are forecasting revenue to reach just RM252.5 billion for 2022 given that commodity prices have peaked in June,” it said.