Govt needs to address increasing debt servicing charges that would reach RM43.1 bln in 2022 - MIDF Research

The allocation for the debt services will take up a larger portion (or 18.5 per cent) of operating expenditure (OPEX), which has been on the rise over the years, MIDF Research said in a note.

It is estimated at 17.6 per cent in 2021 and was 15.3 per cent (RM34.49 billion) in 2020.

"We expect a more proactive measure will be taken to address the growing debt service charges because savings from the debt services can be redirected to a more productive and impactful spending plan," MIDF Research said in its note on Budget 2022 that was tabled in parliament yesterday.

The major factor that will push OPEX higher will be a rebound in the government's spending on supplies and services. The spending on supplies and services is expected to rebound and increase by 30.5 per cent in 2022 after a sharp decline of 20.7 per cent last year.

This will be driven mainly by the higher spending on medical supplies and payment for professional services. Other components, mainly emoluments and retirement charges which cover 49 per cent of OPEX, will also increase to cover increment in the annual salary and pension payouts.

For 2022, the federal government's revenue collection in 2022 is estimated to be higher at RM234 billion or 14.3 per cent of Gross Domestic Product (GDP), driven by the anticipated increase in tax revenue collection to RM171.4 billion and non-tax revenue to RM62.6 billion.

Similarly, total expenditure is budgeted to be slightly higher at RM332.1 billion or 20.3 per cent of GDP, attributed to higher OPEX at RM233.5 billion and development expenditure at RM75.6 billion.

The remaining RM23 billion is for the disbursement under the COVID-19 Fund.

The increase in OPEX is mainly due to supplies and services, debt service charges as well as emoluments. DE allocation will be mainly directed towards the implementation of programmes and projects under the 12th Malaysia Plan, including the Electrified Double Track Rail Gemas-Johor Bahru, Rapid Transit System Link and Pan Borneo Highway.

Improving fiscal space vital to tackle future crises

The government's commitment towards its medium-term fiscal consolidation in the Budget 2022 will help to improve confidence in fiscal management and space as it will provide greater flexibility for the economy during future crises.

Guided by the Medium-Term Fiscal Framework, the government's fiscal deficit is projected to fall to 5 per cent of GDP in 2022-2024, a slower decline compared to the projection during Budget 2021 because of the prolonged global health crisis which led to a wider fiscal deficit this year.

"We expect this medium-term fiscal target can be achieved, barring any unexpected events and crises which could derail Malaysia's growth trajectory and therefore require more fiscal support," it said.

Among others, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz also announced that the Fiscal Responsibility Act (FRA) will be tabled next year.

It is currently being drafted and will incorporate the feedback received from various parties following the issuance of the public consultation paper in September 2021.

The FRA's objective is to strengthen fiscal management, which will include focusing on all aspects of public sector finance from ensuring sustainable income, more productive and impactful spending plans, prudent management of government debts and managing risks to fiscal sustainability.

"With a more transparent and credible reporting of the fiscal management, we expect the introduction and compliance to the FRA will help to further enhance confidence in the public sector finance," it said.