KUALA LUMPUR (October 30): A key point to highlight in the 2022 budget is the 22.5% increase in gross development spending (DE) to RM75 billion, which would benefit construction and infrastructure activities as well as to commerce and industry in the country, according to AmBank Group Research.
“We envision a potential deployment of around RM140 billion of projects through private finance initiatives,” wrote the research house’s chief economist, Dr Anthony Dass, and economist Muhamad Farid Anas Johari in a report on the 2022 budget.
“The contribution of this segment to economic output via the upstream link is 1.62 times and the back link is 0.9 times. From a value added perspective, this sector will contribute 0.97 times via the upstream link and 1.04 times through the downlink, “they wrote.
And the upper DE has a strong emphasis on large-scale projects under construction / infrastructure activities and projects through the National Digital Network (JENDELA) that will improve our digital infrastructure, they noted.
The objective, they noted, is to pursue programs and projects with high multiplier impact to revive economic growth, create a more conducive investment climate and preserve the well-being of the rakyat.
“Of the 75.6 billion RM allocated under this segment, a total of 66.9 billion RM is allocated to 5,575 ongoing projects, while the balance of 8.7 billion RM is intended for 1,180 new projects The focus is on projects related to transport, trade and industry, as well as the energy and utilities sub-sectors, ”they wrote.
The main infrastructure projects they highlighted include the Gemas-Johor Baru electrified double track project, the rapid transit system link, the Pan Borneo highway, the upgrading of the Jalan Marabahai spur to Tuaran, Sabah, replacement of bridges at Sik and Baling at Kedah, and an alternative route study for Jalan Seremban – Kuala Pilah, Negeri Sembilan.
“With regard to trade and industry, the focus will be on strengthening entrepreneurial capacities, including MSMEs (micro, small and medium-sized enterprises) in accordance with the national entrepreneurship policy, and support for growth industries with grants and loans for R&D (research and development) and These include the financing program for entrepreneurs PUNB (Perbadanan Usahawan Nasional Bhd), the fund for local strategic investments, the fund for projects high-impact R&D loans for aerospace and power and electronics, the Special Business Finance Program for Women (DanaNITA) and Industry4WRD, ”they noted.
Fears of faster and stronger inflation than expected
Among other things in the report, the duo also pointed out that there are fears that inflation could accelerate much more than expected.
If headline inflation increased, it would lead to higher core inflation which could erode disposable income and demand due to declining purchasing power and possibly have spillover effects on business activities, have- they noted.
To the woes of upward pressure on prices are added additional money supply created by expansionary fiscal policy combined with cheap monetary policy and other non-monetary measures, they wrote, leading to a “one-off” misallocation of resources. This means that productive factors are now in the wrong place and are slowing the speed of economic recovery.
“Our fear is that when inflation becomes a serious concern, the central bank may be forced to reverse its current accommodative monetary policy where the OPR (overnight key rate) is at 1.75%. If this happens it will increase the cost of funds. This can add some levels of financial distress, especially if the cost of living continues to rise and erodes disposable income.
“We believe the current 1.75% OPR is expected to remain until 1H22 (H1 2022). Any policy revisions will be determined by the data. If inflation stays under control, we expect that the policy rate will witness the first rate hike of 25 basis points in 2H22, more likely in 4Q22 (the fourth quarter of 2022), “they wrote.
The expansionary budget, they also noted, projected that the budget deficit in 2022 would be 97.5 billion ringgit, compared to 98.8 billion ringgit in 2021. This translates into a budget deficit of 6% of GDP, lower to 6.5% to 7% planned for 2021, they noted.
“With the government unable to cope with the fiscal situation at the moment, it is important to design the medium-term narrative and budget transparency to address the concerns of rating agencies. To this end, a rolling triennial projection would act as a solid guide and show the government’s commitment to addressing the issues of fiscal consolidation, reforms and transparency, ”they suggested.
They further noted that with increasing the legal debt limit to 65% of GDP from 60% of GDP, this means that the government’s borrowing capacity would be around RM 140-150 billion in 2022.
See more 2022 budget highlights here.