Malaysia expected to intensify efforts against inflation

MARC views that the country’s petroleum tax revenues may increase to supplement higher deficit spending


MARC Ratings Bhd foresees that inflation in Malaysia is still well managed due to several government mechanisms including the cap on oil prices, subsidies and aggressive price control.

MARC chief economist Firdaos Rosli expects that the government might “go all out” to combat the country’s inflation this year.

“With inflation running at 3.4% as of May 2022 — we poised that the government may spend about 20% of the total expenditure on subsidies alone this year,” Firdaos said at MARC Malaysian Bond and Sukuk (MMBS) virtual conference yesterday.

Recently, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said the total amount of subsidies is expected to reach nearly RM80 billion this year, which is the largest amount in history.

Thus, the economist views that the country’s petroleum tax revenues may increase to supplement higher deficit spending.

However, Firdaos sees the downside risk if Malaysia is facing lower inflation while other countries are dealing with higher inflation.

“The bad side to this is when the inflation goes up everywhere else other than Malaysia, demands will also go up everywhere else except in Malaysia.

“Which means that other countries, perhaps more importantly in the West will pursue with demands (like higher wages and higher prices),” he said.

Meanwhile, the economist foresees that the government is unlikely to meet the 6% fiscal target this year as there will be more fiscal support to complement adjustments in monetary policy this year.

On the corporate bond, he expects it to moderate slightly around RM100 billion to RM110 billion in 2022, driven by robust economic recovery in the second half of 2022.

“Nevertheless, the end of the elevated level of government debt and the stretch of public finances following the pandemic will weaken the quasi-government debt issuances on top of the hawkish interest rate environment and we think that it may impact return issuances somehow indirectly,” he added.

He also projected that the Malaysian Government Securities and Government Investment Issue issuances to remain in the range of RM170 billion to RM180 billion this year.