Malaysia’s budget 2021 to pump-prime economy hit by coronavirus

A general view of traffic on Jalan Tun Razak in Kuala Lumpur as the movement control order kicks in on March 18, 2020. — Picture by Firdaus Latif. Sketched by the Pan Pacific Agency.

KUALA LUMPUR, Nov 6, 2020, ST. 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, The Straits Times reported.

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 next year, over 10 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, with gross domestic product (GDP) 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 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.

“I think this is the most important budget in our history. It will be different from the previous ones because we are going through the worst crisis we have ever seen, not just in Malaysia but also globally,” Finance Minister Tengku Zafrul Aziz had said in an interview with local newspaper New Straits Times that was published on Wednesday.

“Next year’s budget is basically our message that the government will not compromise when it comes to saving the rakyat and the economy. This is the time for everyone to work together,” he added.

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.

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.

Instead, taxes are expected to rebound along with the economy to RM174.4 billion in 2021 from a dismal RM153.3 this year.

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