Two budget presentations, ringgit depreciation, rising inflation and the war on Gaza characterise the year under review

by AUFA MARDHIAH

IN THE year 2023, a series of impactful local and international events have significantly shaped the trajectory of the country.

These include the presentation of two — one supplementary and another for year 2024 — budgets, the weakening ringgit, the rising of interest rate and inflation, the monotonous local bourse, the dismissal-not-amounting-to-an-acquittal of the deputy prime minister and a war launched by the terrorist state Israel against Gaza.

Supplementary Budget

In March, Dewan Rakyat approved the Supplementary Supply Bill (2022) 2023, authorising an additional expenditure of RM60.17 billion from the Consolidated Fund.

The allocation was earmarked for extra expenses associated with services and purposes outlined in the 2022 Schedule, which were either unallocated or insufficiently allocated by the Supply Act 2022 (Act A1638).

The additional expenditure encompasses 10 services, with the Treasury General Service securing the highest allocation at RM52.78 billion, followed by the Allocation to the Statutory Fund (RM2.24 billion) and the Domestic Trade and Consumer Affairs Ministry (RM2.06 billion).

Additional allocations include the Treasury (RM1.19 billion), the Education Ministry (MoE) (RM803.61 million), the Health Ministry (MoH) (RM676.52 million), the Defence Ministry (Mindef) (RM303.73 million), the Election Commission (EC) (RM84.82 million), the Agriculture and Food Security Ministry (KPKM) (RM24.53 million) and the National Unity Ministry (KPN) (RM14.1 million).

The supplementary budget was passed following the revised Budget 2023 of RM388.1 billion tabled by Prime Minister (PM) Datuk Seri Anwar Ibrahim in February.

The amount was segregated to operating expenditure (RM289.1 billion) and development expenditure (RM99 billion) and RM2 billion contingency savings. 

The revised Budget 2023 was crafted following the previous government’s budget of RM372.3 billion tabled by then Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz in October 2022. 

Economic Activities 

In the third quarter of 2023 (3Q23), the Malaysian economy showed a growth of 3.3%, building on the 2.9% recorded in 3Q23. 

According to BNM, the driving force behind this growth was resilient domestic demand, with household spending supported by continuous employment and wage growth. 

Investment activity was buoyed by the advancement of multi-year projects and capacity expansion by businesses. 

Despite softness in exports due to pro-longed external demand weakness, a recovery in inbound tourism partially offset this. 

On supply, the services, construction and agriculture sectors played a supportive role in growth. 

However, the manufacturing sector experienced a decline in production, particularly in electrical and electronic (E&E) products and refined petroleum products, reflecting weakened demand. 

When adjusted for seasonality on a quarter-on-quarter (QoQ) basis, the economy exhibited a 2.6% growth, compared to 1.5% in 2Q. Overall, Malaysia’s economy expanded by 3.9% in the first nine months of 2023 (9M23). 

According to the Department of Statistics Malaysia (DoSM), the 3.3% year-on-year (YoY) growth translates to a cumulative 3.9% YoY growth in 9M23, necessitating a 4.2%-4.5% YoY growth in 4Q23 to align with the government’s projected 4% growth for the entire year. 

From the supply perspective, AmInvestment Bank Bhd (AmInvest) in its market review and outlook for December 2023 said the services, construction and agriculture sectors continued to bolster growth, although there was a partial offset due to a deceleration in the manufacturing sector. 

When seasonally adjusted, the economy saw a notable 2.6% expansion, marking the most substantial economic upturn since 2Q22. 

In September 2023, industrial production experienced a YoY decline of 0.5%, extending the downturn from a 0.3% decrease in August 2023. 

This marks the second consecutive month of contraction, primarily influenced by a significant decline in mining and quarrying. 

However, the negative impact was partially offset by a recovery in manufacturing and increased electricity output. 

Nevertheless, Malaysia’s industrial production demonstrated a monthly growth of 1.1%, following a 2.8% expansion in August. 

Ringgit 

BNM said the evolving expectations regarding global monetary policy significantly influenced domestic financial conditions. 

The robust performance of the US job market led to anticipations of a prolonged tightening policy by the US Federal Reserve (Fed), resulting in higher interest rates both there and globally. 

Conversely, the People’s Bank of China (PBoC) implemented additional monetary policy easing measures to address China’s growth concerns, which negatively affected investor sentiments in the region. 

Against this dynamic backdrop, the US dollar strengthened throughout the quarter, contributing to a 0.2% depreciation of the ringgit compared to other regional currencies. 

However, the ringgit demonstrated a 1.4% appreciation against a basket of major trading partner currencies, as indicated by the ringgit’s nominal effective exchange rate (NEER). 

In December, the ringgit exhibits varying trading levels against the US dollar, ranging from 4.6815 on Dec 1, reaching its lowest point at 4.7065 on Dec 13 and then rebounding to 4.6505 as of Dec 21. 

BNM also reported that headline inflation continued to ease, reaching 2% during 3Q23 (compared to 2.8% in 2Q23). The moderation was observed in both non-core and core inflation. 

In the case of non-core inflation, declines were attributed to fresh food and fuel. 

Core inflation further decreased to 2.5% (compared to 3.4% in 2Q23) but remained above its long-term average from 2011 to 2019, which was 2%. 

The moderation in core inflation was primarily influenced by specific services, including food away from home, expenditures in restaurants and cafés and personal transport repair and maintenance. 

The pervasiveness of inflation decreased, with 40.8% of Consumer Price Index (CPI) items recording monthly price increases during the quarter (compared to 42.7% in 2Q23), falling below the long-term (2011-2019) average of 44.5%. 

Meanwhile, AmInvest reported that headline inflation eased for the second consecutive month in October, settling at 1.8% YoY (compared to 1.9% in September), slightly below the anticipated consensus of 1.9%. 

The deceleration in inflation was primarily attributed to a reduced rise in the prices of food and non-alcoholic beverages, which increased by 3.6% YoY (compared to 3.9% in September). 

This mitigated the impact of price increases in four other components of the CPI — health, recreation services and culture, education, as well as restaurants and hotels. 

Core inflation also eased to 2.4% YoY in October (compared to +2.5% in September), maintaining a streak of 13 consecutive months where it remained higher than healine inflation. 

Additionally, the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) rose to a seven-month high of 47.9 in November, up from 46.8 in October. 

While this marks the 15th consecutive month of contraction in factory activity, it represents the softest decline since April. 

There are tentative indications that the sector may be on the verge of a turnaround, as new orders moderated to a lesser extent, resulting in milder slowdowns in output, purchasing and employment. 

Overnight Policy Rate 

In its latest meeting on Nov 2, BNM’s Monetary Policy Committee (MPC) has opted to keep the OPR steady at 3%. 

The only increase in 2023 was done in May, prior to the appointment of the current BNM governor, Datuk Shaik Abdul Rasheed Abdul Ghaffour, where MPC opted to raise the OPR by 25 basis points (bps) to 3%. 

This adjustment led to an increase in the corridor’s ceiling and floor rates to 3.25% and 2.75% respectively. 

In its Monetary Policy Statement, BNM said the current OPR level maintains a supportive monetary policy stance aligned with inflation and growth prospects. 

Budget 2024 

In October, Anwar tabled Budget 2024, known as the “Belanjawan Madani 2024” with the theme Economic Reform, Empowering People. 

Budget 2024 has been outlined with an allocation of RM393.8 billion, encompassing RM303.8 billion for operating expenditure and the remaining RM90 billion allocated for development expenditure, including RM2 billion set aside for contingency savings. This marks Malaysia’s highest budget ever tabled. 

Notable key highlights in the budget are a proposed increase of Service Tax to 8% from 6% previously (proposed Service Tax hike excludes food and beverage [F&B] and telecommunications); targeted subsidy to be implemented in stages in 2024; and savings from targeted subsidies to be used to increase Rahmah Cash Aid allocation from RM8 billion to RM10 billion. 

Moreover, the removal of price controls on chicken and eggs was scheduled to take place, allowing the market to function freely and ensuring a consistent supply. On Nov 1, subsidies and price control for chicken prices were terminated. Nevertheless, subsidies for Grade A, B, and C eggs would remain according to the existing mechanism. 

2023 Economic Performance 

Sunway University Business School Professor of Economics Dr Yeah Kim Leng said Malaysia’s diversified economy proved its resilience in 2023 amid adverse external developments during the year. 

He said Malaysia’s GDP growth consolidated to an estimated 4% in 2023 (actual 3.9% in the first 3Q) following a strong 8.7% rebound in 2022 as the country emerged from its two-year struggle against Covid-19. 

A notable adverse development has been the slowing of global economy whereby output growth eased to an estimated 3% from 3.5% in the previous year. 

Consequently, Malaysia’s exports shrank by 11.8% and imports 11.1% in the first 11 months of the year in stark contrast to two consecutive years of over 20% growth of total exports and imports in 2021 and 2022. 

Yeah also said the local currency has depreciated against the dollar by over 5% in 2023 similar to the previous year. 

“The ringgit has fallen by 15% against the greenback since the start of the pandemic in 2020. While the ringgit depreciation has boosted the country’s export competitiveness, it also contributed to higher import price pressures,” Yeah told The Malaysian Reserve (TMR). 

Due to weaker domestic demand and easing global commodity prices especially crude oil, headline CPI inflation has eased steadily from 4.7% in August 2022 to 1.8% in October 2023. 

On OPR, Yeah said it is not surprising that there was no further increase in 2023 by BNM — it was only increased once this year to 3% (up 25bps) which is close to the pre-pandemic level of 3.25%-3.5%. 

“Unlike the US where the policy rate was hiked from 0.25% in 2020 to 5.5% in 2023, the interest rate shock to the Malaysian economy has been relatively mild, being raised gradually from 1.75% to the current level of 3%,” Yeah added. 

Universiti Malaysia Kelantan Assoc Prof Dr Abu Sofian Yaacob expressed a similar view on Malaysia’s economic performance. 

He said while the overall state of the economy is not thriving, it is not dire either. Initial expectations indicated a projected 

growth of approximately 3.9% for Malaysia in 2023, contrary to concerns about a potential recession. 

Several industries, including heavy industry/manufacturing, shared service centres, technology, banking and financial services, continue to exhibit growth throughout the year. 

Nevertheless, Abu Sofian was cautiously optimistic, suggesting that if the demand for Malaysian products and materials increases externally, there is potential for economic improvement in 2024, possibly resulting in a growth rate exceeding 4%. 

However, he emphasised the need to monitor global economic trends, especially those related to the US. 

“I am quite confident that if the present political scenario remains stable, then our economy will improve with more foreign investments expected,” he told TMR. 

War in Gaza 

Malaysia has always supported Palestine and is among the frontliners advocating for its rights to freedom. 

2023 witnessed the support of Malaysians for Palestine reached its peak. Despite some blaming the retaliatory attacks by Hamas on Oct 7, those well-versed in the Gaza situation viewed this situation with a more understanding perspective. 

After two months of the Gaza genocide, Malaysia has taken various resistance measures against Israel. 

In October, Malaysia witnessed a massive rally in solidarity with Palestinians amid Israel’s ongoing bombardment of Gaza. 

Among the locations where the rally took place were Kuala Lumpur Independence Square and Axiata Arena in Bukit Jalil, organised by the Malaysian Islamic Youth Movement and attended by the PM. 

During the rally in Bukit Jalil, Anwar also disclosed that he had received numerous threats from Western countries. 

In the same month, Malaysia declared its commitment to contribute RM10 million to the Palestinian cause. 

In November, the Education Ministry also declared a Palestine Solidarity Week, encompassing all educational institutions. 

The objective was to cultivate humane values, including an understanding of human rights and courtesy, among students. 

Recently, Malaysia declared a ban on all cargo ships bearing the Israeli flag from accessing its ports. 

This decision came in the wake of the government’s imposition of a maritime ban on Israel’s major shipping company, Zim Integrated Shipping Services Ltd (ZIM), amid rising concerns about disruptions to global shipping caused by attacks on cargo vessels in the Red Sea. 

Additionally, Anwar announced that all ships en route to Israel would be forbidden from loading cargo at Malaysia’s ports, effective immediately. 

Political analyst Rizal Hamdan is of the opinion that Malaysia is effectively serving as a voice for the voiceless in the Global South, a role it has maintained since joining the UN seven decades ago. 

The nation’s foreign policy, grounded in independence, actively participates in the global arena, advocating for causes like the Palestinians’ plight at various international forums — despite receiving three demarches from Washington. 

Rizal also credited Anwar’s unwavering stance on the Palestinian cause, including during the Asia Pacific Economic Cooperation (APEC) meeting with US President Joe Biden, reflecting Malaysia’s commitment to its principles. 

Moreover, the government’s decision to ban ships bearing the Israeli flag from docking in Malaysia and prevent cargo loading for Israel-bound ships aligns with international laws and treaties, leveraging the country’s strategic location in vital trade sea lanes. 

However, Rizal said the careful dissemination of information is crucial for Malaysia. While championing the Palestinian cause, it is essential to emphasise the humanitarian aspect rather than framing it as a religious conflict.

“We must always emphasise that we are supporting the Palestinian’s cause because of atrocities done by Israel. We support Palestine because of humanity, not because of religious issues. 

“Some parties in Malaysia are turning the Palestinian-Israeli conflict into a religious holy war discourse. This may inadvertently open the gates to religious bigotry and radicals. The Palestinian-Israeli conflict affects not only Muslims but many religions like Christianity and Judaism,” said Rizal. 

Given the diverse religious landscape in Malaysia, he noted that it is crucial to prevent polarisation and ensure that information about the conflict is presented with historical, social and political contexts. 

“Some Malaysians are keen to sympathise with Israel because they are baffled by the right to self-defence. 

“Perhaps they have never been exposed to the historical roots of the conflict and how the Israeli government’s atrocities caused the largest displacement case in human history,” he added. 

Hence, he highlighted the media’s pivotal role in supporting the government’s efforts by providing comprehensive explanations to the public, countering misinformation and fostering a nuanced understanding of the complexities involved. 

Lack of information and disinformation may erode the people’s understanding and solidarity in the long run. 

 

Global Geopolitical Risks 

On the global stage, Rizal expressed his opinion that the latest United Nations General Assembly (UNGA) marked a departure from traditional themes. 

Traditionally, UNGA presidents cover a broad spectrum from the economy to conflict mediation. However, this year’s assembly focused on the Sustainable Development Goals (SDGs) adopted in 2015, aiming to achieve specific benchmarks by 2030. 

He said there are two significant takeaways in his perspective. 

Firstly, there was a notable emphasis on ensuring multilateralism in global diplomacy, challenging the approach of veto-wielding countries. 

For example, a resolution calling for a ceasefire in Gaza at the General Assembly garnered support from 153 countries, signalling resistance to unilateral actions. 

However, it is crucial to recognise that General Assembly resolutions, while politically significant, lack the legal binding force seen in Security Council resolutions. 

Secondly, a crucial discussion unfolded on sustainable climate finance, with global South countries urging their counterparts in the North to intensify efforts. 

This call highlighted the impact of climate change on food security, a key SDG goal. 

Despite these crucial discussions, the commitment of Global North countries to contribute US$100 billion (RM467 billion) for climate issues fell short. 

These issues, though not undermining the importance of a ceasefire, are equally critical highlights from the General Assembly. 

“I am not saying a ceasefire is not important, but those two issues that are equally important to be highlighted from the last General Assembly. We need to revamp the UN system which is already obsolete after seven decades. 

“The world’s peace must be decided by 193 country members in the General Assembly, not by five vetoed players. Deadlock in decision-making at the Security Council only prolongs the conflict,” Rizal said to TMR. 

On how the tension affects the world economy, he said geopolitical tensions wield a profound impact, disrupting the intricate supply chain systems upon which global economic stability relies. 

The ongoing Palestinian-Israeli conflict serves as a pertinent example, with potential spillover effects on global trade routes, notably the Suez Canal. 

Approximately 12% of world shipping traffic and 4% to 8% of global liquefied natural gas (LNG) cargoes traversed the vital waterway in 2023. 

The escalation of a regional war could inflict significant losses on global trade, given that 51% of LNG trade from the Atlantic Basin and 15.7 million metric tonnes from the Pacific Basin rely on the Suez Canal, as reported by S&P Global Commodity Insights. 

Furthermore, recent Houthi attacks on commercial ships in the southern end of the Red Sea raised concerns on the potential disruptions to international commerce, reminiscent of the upheaval caused by the Covid pandemic. 

While the Houthi’s focus is presently on Israeli commercial ships, the implications extend to other shipping companies. 

The Asia Pacific region is not immune to such tensions, particularly with the growing discord between the US and China. 

The upcoming presidential election year for Taiwan adds another layer of complexity, as China’s military drills and incursions near Taiwan heighten the risk of miscalculation and military tension. 

In the event of a military conflict between these nations, trade routes in the South China Sea would be affected. 

The United Nations Conference on Trade and Development (UNCTAD) estimates that approximately 80% of global trade by volume and 70% by value relies on sea transport, with one-third navigating the South China Sea as a primary route. 

Given that US$5.3 trillion worth of goods transit through the South China Sea annually, with US$1.2 trillion accounting for US trade, even a minor conflict could have far-reaching consequences for the global economy beyond our current comprehension. 

The intricate web of geopolitical tensions underscores the fragility of the interconnected global economic landscape. 

“If you ask me whether the tension will affect the world economy, yes it will,” said Rizal. 

Rizal also emphasised the importance of recognising significant international elections that are coming up. 

Events like presidential elections in the US, Indonesia, and Taiwan, the South Korean Legislative election and more on the horizon will play a crucial role in shaping global geopolitical risks in 2024. 

“The level of tension in international relations is intricately tied to the leadership choices made through these elections. 

“Based on this assessment, it is anticipated that the geopolitical landscape in 2024 may not see substantial improvements and could potentially introduce additional high-risk elements, adding complexity to the existing global scenario,” Rizal said. 

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AMONG THE ALLOCATIONS FOR BUDGET 2024

• RM2.4b to build, maintain, repair quarters for civil servants, teachers, hospitals, police, armed forces, firefighters

• RM18m to undertake legislative reforms

• RM38m to boost the productivity

• RM150m to maintain, repair public toilets in 150 local authorities nationwide

• RM2.8b for maintenance of federal roads, bridges

• Electricity bill rebate up to RM40 per month for hardcore poor households to continue with an allocation of RM55m

• Govt to double the allocation for the National Scam Response Centre to RM20m to enhance its function to combat scam-related crimes

• Development allocation to Sabah to be increased (RM6.6b from RM6.5b) and Sarawak (RM5.8b from RM5.6b).

• RM6.8b for technical and vocational education and training (TVET) education next year

• RM350m to boost tourism promotion and activities in Malaysia

• RM2.4b to Federal Land Development Authority (Felda), Federal Land Consolidation and Rehabilitation Authority (Felcra) and Rubber Industry Smallholders Development Authority (Risda) for agri- commodity activities, enhance socio-economic wellbeing of smallholders

• RM600m for Prasarana (M) Bhd to acquire 150 electric buses and build three bus depots

• 33 high-priority flood mitigation projects next year with a cost of RM11.8b

• RM300m for the National Disaster Management Agency (Nadma) for flood preparedness

• RM2.6b in subsidies, incentives for ‘padi’ farmers, fishermen

• Govt to increase floor price of rice to RM1,300 per metric tonne (MT) to boost farmers’ income

• RM400m for Food Security Strengthening programme

• RM50m under the Agricultural Disaster Fund to compensate up to 50% of the value of losses due to disasters

• Fishermen to receive a monthly subsistence allowance of up to RM300 and a catch incentive of up to RM1,000

• RM58.1b for various initiatives including subsidies, incentives and assistance, with almost 50% of the allocation for controlling prices of goods and services

• RM200m to continue the implementation of Payung Rahmah initiatives

• Rahmah Cash Aid (STR) allocation raised to RM10b from RM8b in 2023

• First STR payments for households increased to RM500 next year from RM300

• Maximum rate for STR raised to RM3,700 from RM3,100, while minimum rate for youths increased to RM500 from RM350

• Over RM2.4b allocated to Social Welfare Department (JKM) for over 450,000 people including hardcore poor households, elderly, children and disabled

• Education Ministry gets the biggest allocation of RM58.7b compared to RM55.2b in 2023

• RM1.9b for upgrading and maintaining schools nationwide

• RM16.3b for Higher Education Ministry, from RM15.3 billion

• RM41.2b for Health Ministry, from RM36.3b in 2023

• RM100m for Madani Medical Scheme nationwide

• RM1.1b to resolve water supply woes particularly in Kelantan, Sabah and Labuan

• RM60m to develop 5G Cyber Security Testing Framework and local expertise on 5G technology

• RM2.47b for the people’s housing projects

• RM19.7b for Defence Ministry

• RM19b for Home Ministry

• RM1.9b for the management and development of Islamic affairs

• Civil servants grades 56 and below including contract staff to receive RM2,000 incentive

• Govt pensioners including veterans to receive RM1,000

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