KUALA LUMPUR: Malaysia is expected to accelerate its economic recovery and sustain growth in line with the 12th Malaysia Plan through new initiatives set to be unveiled in the 2025 Budget.

According to Kenanga Investment Bank Bhd (Kenanga IB), key priorities will likely include addressing the cost of living, increasing tax revenue, and enhancing governance and public service delivery.

In a recent note, the bank said that the government is expected to raise development expenditure (DE) to RM94.5 billion in the 2025 Budget, up from RM88.5 billion in this year's forecast, with a primary focus on transport.

It said that this increase will be driven by the anticipated revival of key infrastructure projects such as the Mass Rapid Transit 3 and the Kuala Lumpur-Singapore High-Speed Rail.

Besides transport, DE spending is also expected to prioritise agricultural resilience, enhanced investments in education, healthcare, affordable housing, and national security, particularly in light of regional tensions, the bank said in a recent note.

Kenanga IB also forecasts operating expenditure to rise to RM306.5 billion in 2025 Budget, up from RM302.5 billion projected for 2024.

This increase is expected despite the planned removal of the blanket RON95 fuel subsidy in the second half of 2025, with the savings redirected toward targeted assistance programs, salary increases for civil servants, and the introduction of a progressive wage policy.

On the revenue front, Kenanga IB predicts a recovery of 4.3 per cent in 2025, bringing revenue to RM316.5 billion, following a projected 3.6 per cent decline in 2024.

The Finance Ministry's revenue target for 2024 is RM307.6 billion. This recovery is expected to be supported by revenue-enhancing initiatives and steady growth in domestic economic activity.

Kenanga IB maintains its 2025 gross domestic product (GDP) growth forecast at 4.8 per cent, slightly below the 5.0 per cent forecast for 2024, amid increasing external risks.

The bank also projects a fiscal deficit of 4.0 per cent of GDP in 2025, an improvement from the 4.5 per cent forecast for 2024, although slower GDP growth could challenge efforts to cut excessive spending.

It anticipates that the government will allocate between RM5 billion and RM10 billion in contingency funds as a buffer, potentially to be used as a stimulus if there is a global economic downturn.

Kenanga IB urged the government to prioritise pro-growth policies and invest in high-value projects with strong economic multiplier effects.

Meanwhile, it said that a broad-based consumption tax is unlikely to be reintroduced soon.

"Instead, we expect the government to focus on alternative measures such as a full implementation of e-invoicing, the much-awaited Global Minimum Tax, and enhancing income tax collection by simplifying the tax system and addressing tax evasion and exemptions to boost revenue."

https://www.nst.com.my/business/corporate/2024/10/1119296/2025-budget-government-accelerate-economic-recovery-sustain