KUALA LUMPUR (Sept 7): MIDF Research anticipates Malaysia’s fiscal deficit ratio — the shortfall between revenue and expenditure — to stay in the range of 4% to 4.5% by 2025.

The research house said the forecast takes into consideration the country’s limited income streams and elevated expenditure levels which will keep the fiscal balance trajectory on a challenging path.

MIDF said that 12MP’s allocation for development expenditure (devex) was RM400 billion or RM80 billion per annum, higher than 11MP’s allocation of RM248 billion.  

“For the past 2021 to 2023, the government has allocated RM232.8 billion. Therefore, based on our estimate, the government can spend another RM83.6 billion annually for 2024 and 2025 assuming no change to the original devex allocation,” it said.

MIDF noted that some key infra projects to monitor are the 5G roll-out, Central Spine Road, East Coast Highway 3, West Coast Expressway, ECRL and the LRT in Penang.

“We expect all these projects will offer additional job opportunities and will have positive spillover effects to other economic sectors,” it said.

Meanwhile, the growth rate of 3.9% per annum for skilled employment remains below the 12MP target of 5.2%.

“Even though on improving trends, the skilled-employment ratio still lags behind and it seems a bit far-fetched to reach 35% by 2025.  

“The semi-skilled and low-skilled employment share has been declining but not as fast as expected," it said.

Nonetheless, the research house expects Malaysia’s labour market to gradually transform towards a capital-intensive approach as guided by the New Industrial Master Plan 2030 (NIMP 2030) which is is set to drive employment up by 2.3% on a cumulative average between 2022-2030, providing a total of 3.3 million jobs or a 20% increase in employment by 2030.

In July Prime Minister Datuk Seri Anwar Ibrahim said the Ekonomi Madani plan aims to achieve seven targets within 10 years, including bringing down the fiscal deficit to 3% or lower.

The other targets are for Malaysia to be ranked among the 30 biggest economies, to rank within the top 12 in the Global Competitiveness Index, to raise the percentage of labour income to 45% of the total amount of income, to increase women's participation rate in the workforce to 60%, to be placed in the top 25 of the Human Development Index, and to be placed in the top 25 of the Corruption Perception Index.

Additionally, the plan will be the catalyst for specific policies, such as the newly announced National Energy Transition Roadmap (NETR), New Industrial Master Plan 2023 (NIMP2023) and the mid-term review of the 12th Malaysia Plan (12MP).

"We believe the government of Malaysia via the Ministry of Economy will maintain the focus of enlarging domestic demand share in the economy especially private consumption at 61.9% by 2025,” said MIDF.

The house said by sector, services to GDP ratio has hit the 2025 target and as such expects the sector to hit a new ratio goal of 60% by 2025.

“Revival of the tourism industry, digitalization efforts and improving labour market conditions are among key supportive factors for the services sector.”

MIDF believes the review should also address the state economies' imbalances with an “over-concentration" in Selangor.

It noted that in 2015, Selangor contributed 22.8% to the national GDP. After seven years, the contribution had increased to 25.5% in 2022.  

“This surpassed the 12th Malaysia Plan target rate of 23.6% by 2025. Strong economic expansion in Selangor while other states grew at relatively slower pace are the factors contributing to the GDP ratio surge,” it added.

Since 2016, the house noted that GDP growth in Selangor outperformed the national economic growth. Penang and Kuala Lumpur are other key states that have beaten 12MP’s 2025 GDP share target.  

By CAGR, only Penang, Selangor, Kuala Lumpur, Johor and Melaka recorded stronger growth rate than the 12MP target.  

“Looking ahead, we opine the 12MP-MTR will address this state economies’ imbalances. We are optimistic certain states will benefit more with the upcoming completion of the East Coast Railway Line (ECRL) and Pan-Bornei Highway projects,” it added.

MIDF also expects the review to attempt to strike the balance between employment and national GDP contribution by state.  

Across all sectors, the house observes employment and GDP are distributed “fairly”. For instance, Selangor contributed more than 25% to Malaysia’s manufacturing, construction and services sectors where 20-26% of employment for these sectors were located in the state.  

“Close to one-third of Malaysia’s agriculture output was produced in Sabah & Sarawak while employment of the sector in both states represented more than half of agriculture workforce in 2022.  

“However, we notice there is an imbalance in the mining sector — 51.7% of mining output was produced in Sabah and Sarawak while another 44.4% was found in Supra (economic activity not constrained by state boundaries).”  

“With the upcoming 12MP-MTR, we are confident the government will look into this matter in order to stimulate sustainable and equitable state economic developments as well as overall economic growth,” it added.