Malaysia's Budget 2021 to pump-prime economy hit by coronavirus

KUALA LUMPUR – Malaysia will continue pump-priming its coronavirus-battered economy into the next year, with a 5.4 per cent deficit expected in Budget 2021 being unveiled on Friday (Nov 6) evening.

This only slightly narrows 2020’s projected 6 per cent deficit, which is in part due to a shortfall in revenue by 7 per cent to RM227.3 billion (S$74 billion).

The government’s total expenditure is projected to top RM322 billion (S$105 billion) next year, 2.5 per cent more than what the Treasury believes it will spend for 2020.

Prime Minister Muhyiddin Yassin had said earlier this week that his administration’s first budget will be expansionary, in line with bipartisan calls to ease the burden on the public and corporations given gross domestic product (GDP) is expected to shrink by 4.5 per cent this year, the first contraction since 2009.

The economy is expected to rebound and see growth of 6.5 to 7.5 per cent next year.

“The government will continue to spend in a relatively difficult situation to boost the country’s economy,” Tan Sri Muhyiddin had said to selected local media on Wednesday.

Malaysia’s King, Sultan Abdullah Ahmad Shah has in recent weeks repeatedly called on lawmakers to back the budget to ensure the fight against Covid-19 is well-funded.

This comes amid growing uncertainty since September over Mr Muhyiddin’s majority, which was already razor-thin at the last parliamentary sitting in August with just 113 out of 222 MPs in the government bench.

“It is the worst economic crisis since the Great Depression in the 1930s,” Finance Minister Tengku Zafrul Aziz said when tabling the budget.

Malaysia has announced four stimulus packages so far this year, to soften the economic impact of Covid-19-related shutdowns, valued at RM305 billion. A total direct fiscal injection of RM55 billion has led to the Finance Ministry nearly doubling the 3.2 per cent deficit forecast in Budget 2020, which was tabled last year.

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However, the deficit spike will see a huge increase in borrowings, as total revenue is only slightly more than the operating expenditure of RM226.7 billion and RM236.5 billion for 2020 and 2021 respectively.

According to the government’s fiscal outlook report, funds raised for Covid-19 stimulus and development expenditure worth RM88 billion and RM85 billion this and next year respectively will be financed with debt, up from RM54 billion in development spending for 2019.

But Kuala Lumpur is seeking to diversify further from petroleum-related revenue, forecasting just RM37.8 billion next year against the RM50 billion in 2020, largely thanks to a lower dividend of RM18 billion – RM34 billion in 2020 and RM54 billion in 2019 – from state oil giant Petronas.

This will see non-petroleum revenue increase its share from 68 per cent and 78 per cent in 2019 and 2020 respectively to 84 per cent next year.

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