PETALING JAYA: Budget 2022 that is slated to be announced today is anticipated to emphasise recovery measures to emerge strongly from the pandemic amid juggling fiscal constraints from a higher debt burden.
There are ongoing concerns from the investing community on the financing part of the budget, as the debt burden could grow bigger with Covid-19 still in the air necessitating numerous rounds of government aid in the recent past.
“I don’t think the FBM KLCI is being influenced much by the budget, although I think that it would be an expansionary budget,” Rakuten Trade’s head of research Kenny Yee told StarBiz.“Because the only concern of fund managers now is how would the government be able to finance the budget. This is why there was an increase in the debt ceiling recently while the debt level is already high, but the market has sort of priced this in,” Yee added.
Yee said the market’s recent performance appeared to be driven by some profit-taking activities and also the performance of regional markets yesterday.
The FBM KLCI closed lower by 1.02% or 16.22 points to 1,566.86 yesterday.
The broader market displayed some weaknesses, with 624 counters declining, 422 gaining and 415 remaining unchanged. Some 4.05 billion shares worth RM2.73bil changed hands yesterday.
Asian shares were lower yesterday after the Bank of Japan decided to hold steady its monetary policy.
The ringgit had, meanwhile, strengthened slightly at its close at 4.1502 to the US dollar after opening at 4.1505.
“It’s a bit difficult to say which sectors might gain post-budget announcement, probably the healthcare and infrastructure sectors might get some attention. The focus may also be on the tourism and small and medium enterprises,” he said.
Meanwhile, Malaysia Rating Corp Bhd (MARC) said in its statement that it expects Covid-19-related government aid to continue and this is indicative by moves to raise the statutory debt limit to 65% of the gross domestic product (GDP).
“In fact, the statutory debt level might even expand due to the government pursuing private consumption as the primary engine of GDP growth. Going forward, we expect debt service charges to rise, though low borrowing costs will help to mitigate some of the pressures for now,” MARC said.
“By 2021, debt service charges as a percentage of revenue are expected to come in higher than the 15.3% in 2020. To clarify, the ratio is already 50 basis points higher than the administrative ceiling of 15%,” MARC added.
The rating agency said it is expecting the slew of populist measures which are currently in place to continue to remain, and may even be further enhanced since Budget 2022 will likely be the last budget before the 15th General Election.
“This could include various handouts to firms and households affected by the pandemic, which will be critical to sustaining the recovery momentum of the economy going into 2022,” MARC said, adding that it was cautiously optimistic that the Malaysian economy will return to its pre-pandemic quarterly growth rates after mid-2022.
TA Research, in a recent report, said the country is expected to sustain a high fiscal deficit in 2022, after taking into consideration various revenue enhancing options.
“We expect fiscal deficit to hover around 6.4% in 2022, lower than our forecast 7% in 2021. The improvement largely stems from better revenue collection as the GDP expands between 5% and 6% in 2022 versus 3.7% in 2021,” TA Research said.
As at June 2021, the government’s debt level had risen to 61.2% of GDP, with the statutory debt level at 56.8%.
In value terms, TA Research said Malaysia’s direct federal government debt excluding liabilities and committed lease payments had increased by RM78.8bil in the first half of this year to reach RM958.4bil.
“Excluding the short-term treasury papers and foreign currency external debt, our statutory debt is RM890.7bil,” TA Research said.
The research house also said that the recent increase in the debt ceiling which had been passed in Parliament earlier this month would enable the government to fund RM45bil in extra spending on economic aid and stimulus packages, and will boost the Covid Fund to RM110bil, from RM65bil previously.
“According to the Finance Ministry, RM18.4bil was used under the Covid-19 fund in the first half of 2021. That, together with the RM38bil utilised in 2020, adds up to a total spending of RM56.4bil for the Covid-19 fund. With the new RM110bil Covid Fund ceiling, there is about RM53.6bil left for future spending (if the need arises),” TA Research said.