KUALA LUMPUR: Malaysia’s economy is projected to rebound with a growth between 6.5 per cent and 7.5 per cent next year, said the government on Friday (Nov 6) as it unveiled an expansionary budget geared towards a recovery from COVID-19.
The government led by Prime Minister Muhyiddin Yassin allocated RM322.54 billion (US$77.9 billion) or 20.6 per cent of the gross domestic product (GDP) for total expenditure in 2021, according to the fiscal outlook report released by the Ministry of Finance in conjunction with the tabling of the budget.
Of the total, RM236.5 billion is for operating expenditure and RM69 billion is for development expenditure, while RM17 billion is for the COVID-19 Fund.
The sum is about 2.5 per cent higher than this year’s RM314.7 billion, which has been revised upwards from the initial budget estimate of RM297 billion.
The government also expects to run on a fiscal deficit of 5.4 per cent of gross domestic project (GDP), lower than this year’s 6 per cent, according to an accompanying economic outlook report.
This is the first budget tabled by Mr Muhyiddin’s administration, which holds a slim majority in the House of Representatives.
There have been fears earlier that Members of Parliament (MP) would block the passage of the budget and turn it into a no-confidence vote against Mr Muhyiddin. But the crisis appears to have been averted after the king urged MPs from both sides of the political divide to support the Bill.
Inputs have been sought from the opposition lawmakers on the formulation of this budget, the first time in the country’s history.
Like every other country, Southeast Asia’s third-largest economy has been hit hard by the COVID-19 pandemic, with the economy projected to contract 4.5 per cent this year.
To mitigate the impact of the pandemic, a total of RM45 billion of fiscal injection has been allocated under a COVID-19 Fund, a temporary fund which spans over three years until 2022.
Of the total, RM38 billion will be disbursed this year, while the balance of RM17 billion is expected to be spent next year on wage subsidy programmes, small scale infrastructure projects, small- and medium-size enterprise (SME) soft loans and food security, the government said in an accompanying fiscal outlook report.
Various stimulus packages to support the people and revitalise the economy have slowed this year’s economic contraction. The impact of the packages is anticipated to have spill-over effects and provide an additional boost to the economy next year, the government said.
“With the anticipated improvement in global growth and international trade, the Malaysian economy is projected to rebound between 6.5 per cent and 7 per cent in 2021.
“Growth will continue to be supported by strong economic fundamentals and well-diversified economy,” the government said, adding that the favourable outlook, however, hinges on the successful containment of the pandemic and sustained recovery in external demand.
Government revenue, meanwhile, is forecast at RM236.9 billion next year, a 4.2 per cent rise from this year’s revised estimate, on the back of improving economic growth and business prospects.
The higher revenue is largely attributed to better tax revenue collection, while petroleum-related revenue is forecast to be lower at RM37.8 billion in 2021.
BUDGET SPEECH HIGHLIGHTS
In his budget speech on Friday afternoon, Finance Minister Tengku Zafrul Tengku Abdul Aziz said the government will propose to raise the ceiling of the COVID-19 Fund by RM20 billion to RM65 billion.
The main purpose is to fund aid packages and the needs of frontliners and the procurement of vaccines, he added.
A total of RM1 billion will be allocated next year to fight the third wave of the pandemic, the minister said. This will finance the purchase of test kits, personal protection equipment as well as hand sanitiser for medical frontliners, among other things.
The government also expects the purchase of COVID-19 vaccine to exceed RM3 billion. “The war is not over until and unless an affordable and accessible vaccine is available. The government is committed to obtain COVID-19 vaccines, among which through the participation of the COVID-19 Vaccine Global Access or COVAX,” Tengku Zafrul said.
He also said that RM6.5 billion worth of cash aid will be given out. This will benefit an estimated 8.1 million people.
On the loan repayment moratorium which has been previously extended for targeted groups, the minister said those under B40 (bottom 40 per cent of households) who are recipients of aid programmes and micro entrepreneurs will have the option to defer loan payment for three months, or reduce the monthly instalment by up to 50 per cent for six months.
M40 (middle 40 per cent of households) borrowers who declare a drop in income will also qualify for loan repayment assistance.
To reduce the financial burden on the people during the COVID-19 crisis, the government has also agreed to lower income tax by 1 percentage point for those earning between RM50,001 and RM70,000.
The government also allocated RM2.7 billion to improve rural infrastructure.
ALL ECONOMIC SECTORS EXPECTED TO TURNAROUND
Inflation is expected to normalise to 2.5 per cent next year, following the contraction of the consumer price index by 1 per cent in the first eight months of 2020 due to lower pump prices and discount given on electricity bills as part of the stimulus measures.
Malaysia, though relying heavily on commodities and petroleum for its foreign exchange, has a well diversified economy. It also has strong services and manufacturing sectors.
The services sector, which accounts for 58.1 per cent of GDP, is projected to contract by 3.7 per cent before rebounding by 7 per cent in 2021.The government also expects manufacturing, agriculture and mining to turnround next year.
The manufacturing sector is forecast to rebound by 7 per cent in 2021. “Chemical and rubber products are anticipated to continue to record high growth, benefiting from higher demand for rubber gloves and pharmaceutical products,” the economic outlook said.
Agriculture, which contracted by 3.9 per cent in the first half of 2020, is expected to turnaround by 4.7 per cent next year, supported mainly by higher production of palm oil and rubber.
Construction is expected to expand by 13.9 per cent next year, after a contraction of 18.7 per cent this year on the account of the acceleration and revival of major infrastructure projects, along with affordable housing projects.
Gross exports are estimated to expand by 2.7 per cent in 2021, following a projected decline of 5.2 per cent this year.
“After a dismal economic performance in 2020 due to the COVID-19 pandemic, the Malaysian economy is expected to rebound firmly in 2021, in line with the expectation of a more synchronised global recovery.
“At the same time, domestic demand is projected to record a steady growth, supported by improvements in labour market conditions, low inflation and favourable financing conditions as well as the revival of major infrastructure projects. All sectors in the economy are expected to turnaround, with services and manufacturing sectors continuing to spearhead growth,” the government said.