Malaysia gears for election-friendly budget with smaller deficit

Analysts say, PM Ismail Sabri Yaakob must trim the deficit to keep investors’ faith, shield the masses from high inflation, and ensure economic growth

Sectors or industries likely to benefit from the budget include consumer staples, food, affordable housing and tourism, according to Maybank

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Shoppers wear masks at a market, amid the pandemic in Kuala Lumpur, Malaysia. Photo: Reuters/File

Published: 3:51pm, 5 Oct 2022Updated: 4:05pm, 5 Oct 2022

As Malaysia’s Prime Minister Ismail Sabri Yaakob prepares his re-election bid, his administration’s final budget on Friday offers him a rare opportunity to win over voters with spending proposals that many expect will be heavy on feel-good factor and light on new taxes.

Ismail, who is under pressure from his United Malays National Organisation party to call elections before the year is out, needs to get the budget maths right before the vote. For that, he must reconcile the goal of narrowing the fiscal deficit to keep investors’ faith in the economy with the need for shielding the masses from high inflation, while ensuring economic growth remains sustainable.

“The budget proposals will be generous, filled with various goodies for the people, providing cash assistance to low-income households,” said Imran Nurginias Ibrahim of BIMB Securities.

Economists expect Malaysia to stick with cash handouts and subsidies for targeted groups, consider a loan moratorium for small businesses to offset rising interest rates and increase allocation for healthcare, among other measures. The aid is key to helping Ismail build public goodwill, given some 70 per cent of the low-income households in a World Bank survey said they were unable to meet their monthly basic needs.

Foreign funds have also cut their holdings in Malaysia’s US$332 billion stock market for 14 straight days up to October 3, the longest streak since December 2021, according to Bloomberg data. That has brought the main KLCI index to the brink of a bear market before the presentation of next year’s spending plan on October 7.

Here’s what to watch for in the budget: