Malaysia Morning Wrap | Astro Malaysia Holdings Bhd Reports Strong 2QFY2025 Net Profit Despite Revenue Decline

Malaysia has emerged 33rd out of 133 countries on the Global Innovation Index (GII) 2024, its highest ranking since 2016, said Science, Technology, and Innovation Minister Chang Lih Kang. This is an encouraging improvement from its 36th place ranking from 2021 to 2023. Malaysia not only improved its overall ranking but also maintained excellent performance in key fields. The country remains second among the most innovative in the Upper Middle-Income Countries category and ranks first in three critical sub-indicators: graduates in science and engineering, high technology exports, and creative product exports. Additionally, Kuala Lumpur has been listed in the 100 World’s Best Science and Technology Clusters for the first time at 93rd place.

Minister Chang emphasized the need for continued efforts to strengthen the innovation field, as it is crucial for global competitiveness, particularly in science and technology. He highlighted that Malaysia needs to boost its investment in research and development (R&D), which is currently at a gross domestic expenditure on R&D (GERD) of 1%, compared to South Korea's 4.93% and Japan's 3.41%. To achieve a top 30 ranking by 2025, the government and private sector need to invest significantly in R&D. He also announced the launch of the Malaysia Innovation Index (MII) next year to measure innovation levels in each state. The GII, issued by the World Intellectual Property Organisation (WIPO), is a crucial tool for assessing innovation ecosystems and guiding policymaking and investment decisions.

Malaysia's Budget 2025 is expected to remain expansionary to address the elevated cost of living and bolster economic growth, according to UOB Global Economics & Markets Research. Despite efforts to narrow the fiscal deficit to a projected 3.8% of GDP in 2025, against 4.3% in 2024, the total government outlay is projected to increase by 1.7% to RM404.8 billion in 2025. This rise is driven by anticipated increases in operating expenditure (opex), which includes enhanced targeted cash aid, pay hikes for 1.6 million civil servants, pension adjustments for over 931,000 government retirees, and increased grants for Sabah and Sarawak. UOB's research note suggests that the expansionary budget will support a robust economic growth outlook of 4.5% to 5.5% in 2025, driven by resilient domestic demand, robust investments, sustained private consumption, and a continued recovery in the external sector.

Despite an anticipated 3.8% rise in opex to RM324.8 billion, the government plans to manage fiscal resources prudently by reducing development expenditure to RM80 billion, 5.9% lower than 2024's RM85 billion allocation. UOB highlights that further subsidy rationalisation measures will be key, including expanding targeted diesel subsidies to East Malaysia and potential subsidy cuts for RON95 petrol and food-related items. These measures aim to manage the persistent rise in opex, which has grown at a CAGR of 5.7% per annum since 2010. The government is expected to set its inflation forecast at 2.5% to 3.5% for 2025 and introduce new tax policies, such as a high-value goods tax and a sugar-sweetened beverage tax, to broaden its revenue base. Additionally, measures like a multi-tier levy for foreign workers and higher sin taxes on cigarettes and e-cigarettes are expected. UOB believes the government will balance new policies to maintain positive investor sentiment and ensure economic and financial stability.