12MP review: No surprise, best surprise

Economic structural transformation crucial for Malaysia’s economic growth in next couple of years in the context of competition between our regional peers 


THE initiation of the 12MP MTR (12th Malaysia Plan Mid-Term Review) aims to assess the accomplishments of the initial two years (2021-2022) of the five-year plan and set the course for the subsequent three years (2023-2025). 

This is all in pursuit of the overarching goal of transforming the nation into a sustainable, prosperous and high-income entity, all while considering the current domestic challenges and global trends. This time, the government has outlined 17 “Big Bolds” to catalyse development across the key enabler and three focus areas (strengthening sustainability, building prosperous society, achieving a high-income nation) moving forward. 

Upward Revision in GDP Growth 

The anticipated growth rate for the upcoming years (2023-2025) is expected to range between 5% and 5.5% annually. Notably, the overall target for the 12MP has been revised upward to a range of 5% to 6% from the initial official target of 4.5% to 5.5% set in 2021. This revision primarily stems from increased growth in domestic demand, particularly driven by private expenditure. 

The 12th MP MTR gave us no surprise as the key pathway of Malaysia’s economic development has already been cited in the Madani Economy, including the New Industrial Master Plan (NIMP) and New Energy Transition Roadmap (NETR) that was released recently. 

In our point of view, we see the upward revision by government about Malaysia’s economic growth of 5%-6% YoY as slightly challenging, given that the normalisation effect from post-pandemic reopening and lingering worldwide recessionary fear will weigh on both domestic and foreign consumption growth in 2023. 

Nevertheless, we still have a constructive view of Malaysia’s GDP continue to grow at the pace of 4%-5% YoY in 2024F and 2025F under the anticipation of subsided recessionary fear and still-resilient domestic spending will serve as the bottom line for the next two years. 

Unlikely to Implement GST Soon 

Besides, the Minister of Economy Rafizi Ramli stated that the government is considering the possibility of reintroducing the Goods and Service Tax (GST) as part of the efforts to broaden the revenue sources in order to attain fiscal stability. Furthermore, he emphasised various potential avenues including options such as capital gains tax or any other form of direct or indirect taxation. 

Regarding expenditure optimisation, the government has outlined the concept of subsidy realignment through the introduction of the targeted subsidies system. However, the rollout of these targeted subsidiaries is contingent upon the availability of an integrated household database managed by Pangkalan Data Utama (PADU). 

Generally, the revenue collection from GST is higher than the current income-based tax, yet we deemed the implementation unlikely to be that soon in 2023. The people have yet to fully recover from the damage done by the pandemic, while the rising living costs have exacerbated the problem. In order to achieve the aim of narrowing the fiscal deficit, we expect the government to focus on reforming the subsidies mechanism in advance before reintroducing the GST to minimise public grievances, potentially more details to be announced in Budget 2024. 

Expect Mild Market Reaction 

We maintain our favourable mid to long-term outlook for 12MP to support Malaysia’s economic structural transformation. The reformation is crucial for Malaysia’s economic growth in the next couple of years in the context of competition between our regional peers amidst the China/US-plus one strategy taken by multinational companies to reduce the geopolitical risks. With the combination of NIMP initiatives to bolster growth in the manufacturing segment, this could have a positive impact on the overall economic growth. 

On the other hand, we opine the materialisation of these plans requires a longer time period (three to seven years according to NIMP2030’s guidance), thus the positive spillover effect might not be reflected in the share price immediately. Instead, investors are eying the incoming tabulation of Budget 2024 to determine the impact of the implementation of the subsidies reformation mechanism or (potentially) the introduction of new taxes in the realm of fiscal management. 

Key Takeaways 

In a nutshell, we hold a long-term constructive view of Malaysia supported by the subsided political instability and clearer framework for economic growth. Nevertheless, we expect the announcement of 12MP MTR is unlikely to spur a significant buying interest in the local bourse in the short term as the investors are still weighing on the macro backdrop and there is a lack of massive positive surprise based on the 12MP MTR. 

  • The views expressed are of the research team and do not necessarily reflect the stand of the newspaper’s editorial board. 

  • This article first appeared in The Malaysian Reserve weekly print edition