Analysts see Anwar coming up with bigger, bolder Budget 2023 to set tone

Malay Mail
Malay Mail

KUALA LUMPUR, Dec 5 — Prime Minister Datuk Seri Anwar Ibrahim is likely to table a bigger federal spending plan for next year as his government aims to expedite key reforms and insulate the economy from a possible global recession, economists and analysts predicted.

Key agendas under the new government’s Budget 2023 would likely be based on Pakatan Harapan’s (PH) shadow budget, which was mostly built around policies meant to safeguard the country’s recovery from the effects of the Covid-19 pandemic.

Based on what was outlined in its 2023 spending strategy document, coalition leaders had hinted at an expansionary budget although it remains unclear if the quantum would match or surpass the record RM372 billion budget tabled by Barisan Nasional on October 7, just three days before the 14th parliamentary term was dissolved.

The budget was never approved.

“Budget 2023 would probably go through a revision, especially so if PH is in control of strategic portfolios such as finance and economic planning,” said Hafidzi Razali, who specialises public policy and regulation at Bower Group Asia.

“This is to better reflect PH’s short-term gap fillers in facing current economic challenges and 2023’s economic headwinds. Familiar elements may be inferred from PH’s alternative Budget 2023,” he added.

Under the new budget, analysts see Anwar placing institutional reforms and taming inflation as top priority.

Wage stagnation, already a long-standing problem in the country, is now worsened by a weakened currency. South East Asia’s third biggest economy is a net food importer and because of the sluggish ringgit, food costs have soared. The quarterly inflation rate has stayed above 4 per cent.

PH noted that Malaysia is set to record slower growth. The World Bank had revised Malaysia’s 2023 GDP forecast from 4.5 to 4.2 per cent on the back of heightened risk of a global slowdown. In his first address after clocking in as prime minister, Anwar pledged to alleviate living cost pressure but was unclear about how he plans to do it.

Signalling his focus on the economy, Anwar has also controversially taken on the finance portfolio himself.

Geoffrey Williams, a professor of economics at HELP University, said while the budget set out by the last government proposed a 12 per cent increase in spending on a long list of pre-election handouts, a post-election budget should have different priorities. He suggested raising the quantum to adjust for inflation.

“We will now have a post-election budget that has different priorities of addressing cost of living, promoting investment, especially for micro, small and medium enterprises (MSMEs) and addressing issues in education and skills,” he said to Malay Mail.

“So, we can have a different budget, for example, increasing spending by inflation to around RM345 billion but changing the allocation priorities. This would still be a record budget and would support growth without overheating the economy.”

This re-calibration, he added, could still lower the deficit to allow some space in case the slowdown next year is more severe and it would allow a pause in interest rate rises. Williams suggested all development projects be reviewed and prioritised to identify anything that could be removed, rescheduled or taken on by private investment.

This year’s deficit rate is expected to be at 5.5 per cent of GDP, with the previous administration suggesting it would commit to reducing the overspending. Anwar has hinted that he would do the same by plugging leakages and cutting wastage. He has already followed through on shrink his Cabinet size compared to his predecessor’s government, and pledged to cut their emoluments.

Under the 2023 budget strategy document, PH reiterated its earlier pledge to enact two laws, the Government Procurement Act (GPA) and Fiscal Responsibility Act (FRA). The GPA is aimed at tightening governance in managing public spending and contracts, while the latter will encourage clarity and accountability in fiscal planning.

Such a move, which coalition leaders argue can save the government billions in spending, have long found support among mainstream economists.

“Efficiency gains should be emphasised and procurement through open tender should be enforced to get the best deal without compromising quality. So, it is not necessarily a matter of reducing operational expenditure but it is more about efficiency and new priorities,” Williams said.

On the socio-economic front, PH has made food security a key agenda among others. Agricultural subsidies could be raised to RM3.5 billion from the current RM2.5 billion, as suggested by its shadow budget.

All this is meant to raise Malaysia’s self-sufficiency level and reduce reliance on food import. Anwar has also vowed to crack down on “cartels” that monopolise food production and supply chains.

There are expectations that PH leaders would likely want to extend these structural changes into other key sectors like education and industry support, particularly for the MSMEs.

Senior economists at UOB suggested PH’s budget could reflect pledges made in its election manifesto, which appeared to be “pro-growth”, but whether or not Anwar could adopt the coalition’s shadow budget wholesale remains to be seen given that he now leads a government coalition partners with vastly differing interests.

“The manifestos of the parties converge on key economic issues to tackle high cost of living, economic opportunities, investments, and addressing corruption,” the bank’s global economics and market research department said in a macro note released shortly after Anwar was announced as the country’s tenth prime minister.

“As such, we think the new government will remain pro-growth though populist, particularly given the challenging global outlook in 2023.” it added.

“Without a simple majority, there could be more challenges to push-through key reforms that tackle fiscal weaknesses, improving governance, and addressing corruption.”

This complication might also force Anwar to take more time and delay tabling a full budget this year.

Fahmi Fadzil, Lembah Pantai MP and PKR’s information chief, confirmed the matter suggesting that the current government would only table a provisional Supply Bill that covers emoluments and salaries of the civil service at the two-day special sitting that starts on December 19, when Anwar is expected to hold a vote of confidence against his leadership.

“This December 19 to 20 we’ll be tabling a bill for emoluments. To be followed likely at the next sitting with a full budget. Depends on the incoming minister of finance and unity government priorities,” he told Malay Mail.