Structural reforms a key focus for Budget 2023

In its pre-Budget statement, the Finance Ministry (MoF) said the reforms will be done by, among others, increasing productivity and sustaining innovation; promoting regional collaboration to ensure resilient infrastructure development and energy provision; enhancing the social protection system; strengthening human capital development; as well as enhancing transparency and accountability of public institutions.

"These measures will further improve policy certainty and investors' confidence, thus strengthening the country's economic resilience for Malaysia to continue becoming an attractive investment destination," it said.

Given the significant contribution of the small and medium enterprises (SMEs) towards the economy, MoF also said the government will more greatly emphasise the development of SMEs to be more competitive and resilience.

On Malaysia's economic performance for the year, MoF said the country started off strongly in 2022 with a gross domestic product (GDP) growth of five per cent in the first quarter.

"The favourable performance was supported by both domestic and external demand, as well as a continued reduction in unemployment," it added.

The ministry said the pace of Malaysia's economic recovery is expected to accelerate as the economy and international borders reopen; however, as a highly open economy, the pace of Malaysia's economic recovery is dependent on global economic developments.

"Geopolitical tensions, for example, have resulted in multiple economic pressures, most notably an increase in global inflation as commodity prices continue to rise. Furthermore, the risk of tighter global financial conditions, labour shortages, and rising living costs may complicate the country's economic recovery efforts," it cautioned.

MoF assured that the government will continue to monitor the various economic risks and effectively manage any external shocks that may affect the well-being of the people and businesses.

On the fiscal outlook, it said the fiscal deficit for the 2022 Budget was targeted at six per cent of GDP following better global economic prospects and the gradual reopening of economic and social sectors on the domestic front.

"Overall, the better revenue performance, coupled with rigorous expenditure management and sustained growth trajectory, is expected to mitigate the risk of fiscal slippage and keep the deficit target on track at six per cent of GDP," it said.

As of end-April 2022, the fiscal position continued to improve, given the strong domestic economy which contributed to a surge in revenue collection, coupled with high commodity prices, MoF said.

However, it noted that operating expenditure also increased, particularly due to the current fuel subsidy mechanism, which mitigated rising inflationary pressures domestically.

Moving forward, MoF said the fiscal consolidation plan will be further intensified towards achieving the fiscal deficit target of 3.5 per cent to GDP in 2025 as outlined under the 12th Malaysian Plan.

"Fiscal reform initiatives will be continued to strengthen the financial position by improving fiscal governance, broadening the revenue base and optimising expenditure," it said.

On the measures for SME development, MoF said concerted effort will be made to enhance their knowledge, digital capabilities as well as managerial practices.

The government, it said, will focus on strengthening programme coordination across ministries to ensure swift implementation of various initiatives for the SMEs.

Also, specific measures to foster linkages between the SMEs and the innovator community -- multinational companies and academia -- will be prioritised to encourage and incentivise the adoption of innovative processes by the SMEs, the ministry said.

Initiatives to encourage SMEs to embrace Environment, Social and Governance (ESG) practices and undertake more green investment will also be promoted.

"These efforts, taken together, would hasten the development of high-growth local start-up industries and innovative firms that will drive Malaysia's economic transformation," it added.

MoF said in line with the Bumiputera Development Action 2030 (TPB2030), Budget 2023 will increase the role of Bumiputera in the national economy to improve income distribution among communities in Malaysia and address the disparity between states and regions in Malaysia.

"In addition, focus will be given to vulnerable groups in order to ensure fair and equitable opportunities for them to participate in national development," it said.

In addressing the disparity between states and regions, the government will ensure that a more balanced development is achieved through better allocation of development resources as well as improved digital connectivity.

"Towards this end, the roll-out of digital technology will incorporate digital inclusion policies and be made more affordable. This initiative will encourage the wider society, especially those in the rural areas, to be better served through digital applications, products and platforms," MoF said.