KUALA LUMPUR, December 21, 2020 – The Malaysian economy is projected to expand by 5.8 percent in 2022, as domestic and external demand recovers, according to the latest edition of the World Bank Malaysia Economic Monitor: Staying Afloat, launched today. The forecast for the year ahead follows growth estimates of 3.3 percent in 2021. It remains clouded by several downside risks, including new COVID-19 outbreaks and weaker-than-expected global and regional growth.
Limited fiscal space remains a key challenge. Federal government revenue, which has been declining since 2013, is projected to reach 14.3 percent of GDP in 2022. Meanwhile, rigid operating expenditures – namely emoluments, retirement charges, and debt service payments – have grown markedly over time and are expected to take up two-thirds of federal government revenue next year, increasing fiscal rigidity and crowding out discretionary spending.
“The pandemic has further constrained Malaysia’s already limited fiscal space. Government revenue is expected to decline while rigid expenditures remain high. Therefore, the government should accelerate efforts to rebuild fiscal buffers by collecting more and spending better,” said Ndiame Diop, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand.
A Fiscal Responsibility Act (FRA), expected to be proposed in 2022, could pave the way for medium-term fiscal consolidation. However, in the short term, improving the targeting of social spending and at the same time phasing out generalized and regressive subsidies, such as fuel subsidies, will help raise the efficiency of government spending. Targeted social spending should remain a short-term priority due to the high degree of uncertainty over the health and economic outlook moving into 2022.
“Even before the pandemic, many low-income households were already struggling to make ends meet. The pandemic has caused disruptions to income, leading to many households being vulnerable to poverty, especially those in the B40 and most vulnerable categories. The jump in Malaysia’s poverty rate from 5.6 percent in 2019 to 8.4 percent in 2020 is a humbling reminder for the government to ensure that no one is left behind,” said Datuk Seri Mustapa Mohamed, Minister in the Prime Minister’s Department (Economy).