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PETALING JAYA: DAP Secretary General Lim Guan Eng’s hint that Pakatan Harapan (PH) may vote against the 2021 Budget if the government rejects all six proposed measures has raised concerns ahead of the budget presentation on 6 November.
Economists who spoke to StarBiz broadly agreed on all but one of PH’s proposed measures, namely the extension of the loan moratorium until March 31, 2021, citing unviability.
According to Bank Islam Malaysia Bhd Chief Economist Mohd Afzanizam Abdul Rashid, the current moratorium and specific loan assistance is preferred to a general approach suggested by PH.
Mohd Afzanizam noted that not everyone required an extended vacation period for loan repayment, especially those who are not financially affected due to the Covid-19 induced crisis.
“Looking at Bank Negara’s Financial Stability Review figures in the first half of 2020, the proportion of households that opted for the previous general moratorium dropped from 86.9% in April to 85.5% in May and 84 , 4% in June.
“For those who are not affected, a moratorium could delay the maturity of their debts. In other words, it will take them longer to pay off their outstanding loans.
“Therefore, the solution must be targeted and tailored to the situation people face,” he told StarBiz.
Mohd Afzanizam added that Bank Islam has extended its financial assistance targeting qualified borrowers until June 2021.
PH has proposed six measures for the next budget, called the “2021 Unit Budget”.
The measures are: increase the resources of the Ministry of Health for Covid-19 and non-communicable diseases, increase the monthly social assistance to RM1,000, the extension of the loan moratorium, the extension of the salary subsidy program, increase educational spending also how to allocate development expenses for the National Fiberization Connectivity Plan and improve the water infrastructure in Selangor, Kelantan and Pahang.
An economist described the six measures proposed by PH as “nothing new” and disagreed with the call to extend the loan moratorium. “The profitability of banks has been affected by the previous automatic loan default and another round of such a measure will only be negative for banks.
“This is not the right decision at a time when the overnight policy rate has already dropped dramatically this year, which has caused a squeeze in margins,” he said.
The upcoming 2021 Budget will be closely watched for many quarters in anticipation of higher public spending to further boost consumption and business confidence.
Maybank IB Research believes that the federal government’s fiscal deficit next year will likely remain high, as the 2021 budget is slated to allocate more cash for spending, despite a projected revenue shortfall.
With tax increases or new taxes unlikely to occur in 2021 amid the fragile economic environment, Maybank IB Research forecasts that government spending will exceed its revenues by RM90bil, representing a fiscal deficit of 6% of gross domestic product ( GDP).
By comparison, the research house expects a deficit of RM95bil in 2020 or 6.7% of GDP.
“In terms of allocation and incentives, we expect Budget 2021 to increase spending on social welfare and safety nets by continuing and improving specific supports for the vulnerable population, as well as Covid-19-related health care spending, including the purchase of vaccines.
“In terms of infrastructure projects, 2021 should see faster progress on existing major infrastructure projects, in addition to the scheduled implementation, and possible confirmation, of additional major infrastructure projects,” the research house said.
Meanwhile, Bank Islam’s Mohd Afzanizam forecasts a fiscal deficit of 6.5% in 2021, compared with 7% next year. He expects the healthcare sector to receive a larger allocation in the 2021 budget to prepare against the pandemic.
Another key area of focus would be employment, he said. As such, programs such as wage subsidy programs, Geran Khas Prihatin, and cash transfers such as Bantuan Prihation Nasional will continue. I don’t think there should be new taxes, ”he added.
Mohd Afzanizam also urged the government to accelerate large infrastructure projects, considering that the country’s construction production decreased by 44.5% during the second quarter of 2020. “As such, it is time to ensure that the projects will be up and running. like now. it will have a positive indirect effect on other industries such as manufacturing and services, “he said.
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