Though the govt’ expenditure is expected to increase significantly, the govt still maintains a healthy balance sheet

by FAYYADH JAAFAR / TMRpic

MALAYSIA’S current fiscal position remains solid despite the increase in expenditure due to rising oil prices.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the government is able to finance its spending plans and maintain a healthy balance sheet through the effective management of public expenditure, including stimulus packages and cash transfers.

He also confirmed the government’s austerity measures to all ministries and government agencies which began on July 14.

“Among the measures in the circular are controls on overseas visits, imported goods and uncommitted expenditure. However, I would also like to emphasise that the measures centred on the wellbeing of the people will continue,” Tengku Zafrul said.

He noted that the federal government’s expenditure is expected to increase significantly compared to the Budget 2022 estimate of RM332.1 billion.

“This is due to the sharp increase in subsidies and social assistance where the total is expected to reach RM80 billion, much higher than the RM31 billion when the Budget 2022 was tabled.

“It is well known that this measure is taken to reduce the burden of the rising cost of living for all Malaysian families due to rising world commodity prices,” he said in a written response to a question raised by bukit Bendera MP Wong Hon Wai during the question time session of the Dewan Rakyat yesterday.

He highlighted the example of the RM8 billion allocation for Bantuan Keluarga Malaysia cash aid. 

He pointed out that the government had introduced new subsidies that were not included in the Budget2022, namely for poultry and eggs, as well as electricity.

“For petrol, diesel and liquefied petroleum gas, for example, the estimated subsidy requirement this year is RM37.3 billion compared to RM13.2 billion last year. Cooking oil has reached RM4 billion compared to RM2.2 billion, and for other consumption subsidies, the estimated expenditure is RM9.7 billion compared to only RM1.1 billion last year.

“In addition, when Budget 2022 was tabled, the world crude oil price assumption for revenue estimates and subsidies was set at US$66 (RM294.36) per barrel. World crude oil prices have risen more than US$100 dollar per barrel since March this year. As for crude palm oil, Budget 2022 assumption is around RM3,400 per tonne, but the average actual palm oil price has exceeded RM6,000 per tonne since its price rose sharply in March,” he said.

He stated that higher crude oil and palm oil prices this year are expected to generate additional tax revenue of more than RM10 billion, with the government continuing to manage its expenditures carefully.

“In addition, the momentum of the recovery exceeded expectations, with the country’s GDP growth in the first quarter of this year (1Q22) very encouraging at 5%, and is expected to be stronger in 2Q22. Based on the trend, we will receive additional revenue related to income tax and indirect taxes in excess of another RM10 billion.

“However, all these revenue increases are not enough to cover the increase in subsidies, which has exceeded RM40 billion,” he added.

In regards to inflation, he said the inflation rate in Malaysia is still under control at 2.2% for 1Q22 and was recently recorded at 2.8% for May 2022. While in the same month, the inflation rate in developed countries such as the US and the UK reached 9%, Thailand’s was 7%, and the Philippines’ over 5%.

“Malaysia’s inflation rate, which can be considered moderate, is due to the government’s move to implement price controls on basic goods and services, especially through the provision of subsidies on selected fuel and food prices as well as electricity subsidies,” the minister said.