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KUALA LUMPUR: Malaysia’s economy is projected to rebound with growth of between 6.5% and 7.5% next year, the government said on Friday (November 6) when it released an expansive budget geared towards to a recovery from COVID-19.
The government headed by Prime Minister Muhyiddin Yassin allocated 322.54 billion ringgit ($ 77.9 billion) or 20.6% of gross domestic product (GDP) for total spending in 2021, according to the fiscal outlook report released by the Ministry of Finance in conjunction with the presentation of the budget.
Of the total, RM 236.5 billion is for operational expenses and RM 69 billion for development expenses, while RM 17 billion is for the COVID-19 Fund.
The sum is approximately 2.5% higher than this year’s RM 314.7 billion, which has been revised up from the initial budget estimate of RM 297 billion.
The government also expects to have a fiscal deficit of 5.4 percent of gross domestic project (GDP), down from 6 percent this year, according to an accompanying economic outlook report.
This is the first budget presented by the Muhyiddin administration, which has a small majority in the House of Representatives.
Previously it was feared that Members of Parliament (MP) would block the approval of the budget and turn it into a vote of no confidence against Muhyiddin. But the crisis appears to have been avoided after the king urged MPs on both sides of the political divide to support the bill.
Input has been sought from opposition legislators on the formulation of this budget, the first time in the country’s history.
READ: Malaysia’s budget for 2021 will be expansive to support people and revive the economy, says Muhyiddin
Like any other country, Southeast Asia’s third-largest economy has been hit hard by the COVID-19 pandemic, with the economy forecast to contract 4.5% this year.
To mitigate the impact of the pandemic, a total of RM 45 billion of tax injection has been allocated under a COVID-19 Fund, a temporary fund that runs over three years until 2022.
Of the total, RM 38 billion will be disbursed this year, while the balance of RM 17 billion is expected to be spent next year on wage subsidy programs, small-scale infrastructure projects, small and medium-sized soft loans companies (SMEs) and food safety. the government said in an accompanying fiscal outlook report.
A man rides a scooter at the Perdana Botanical Gardens in Kuala Lumpur, on October 30, 2020 (Photo: AFP / Mohd Rasfan).
Various stimulus packages to support the people and revitalize the economy have slowed the economic downturn this year. The impact of the packages is anticipated to have indirect 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 recover between 6.5% and 7% in 2021.
“Growth will continue to be supported by strong economic fundamentals and a well diversified economy,” the government said, adding that the favorable outlook, however, depends on the successful containment of the pandemic and the sustained recovery of external demand.
Meanwhile, government revenue is forecast at RM 236.9 billion next year, an increase of 4.2% from this year’s revised estimate, thanks to improved economic growth and business prospects.
The higher revenue is largely attributed to better tax revenue collection, while oil-related revenue is projected to be less than RM37.8 billion in 2021.
Malaysia’s Finance Minister Tengku Zafrul Tengku Abdul Aziz (center) holds a briefcase containing the 2021 budget speech in front of the Finance Ministry building in Putrajaya before departing for parliament on November 6, 2020 ( Photo: AFP / Mohd Rasfan).
Next year a total of RM 1 billion will be allocated to fight the third wave of the pandemic, Finance Minister Tengku Zafrul Tengku Abdul Aziz announced in his budget speech. The allocation will finance the purchase of test kits, personal protective equipment and hand sanitizer for frontline physicians, among other things.
The government also expects the purchase of the COVID-19 vaccine to exceed RM3 billion. “The war does not end until and unless an affordable and accessible vaccine is available. The government is committed to obtaining COVID-19 vaccines, among which is through the participation of COVID-19 Vaccine Global Access or COVAX, ”said the minister.
ALL ECONOMIC SECTORS ARE EXPECTED TO TURN AROUND
Politicians said domestic demand has shown signs of recovery in the second half of 2020, particularly in private consumption.
Inflation is expected to normalize to 2.5% next year, following the contraction of the consumer price index by 1% in the first eight months of 2020 due to lower prices from the pumps and discounts granted in the electricity bills as part of the stimulus measures.
Malaysia, although highly dependent on raw materials and oil for foreign exchange, has a well diversified economy. It also has strong manufacturing and service sectors.
The services sector, which accounts for 58.1 percent of GDP, is projected to contract 3.7 percent before recovering 7 percent in 2021.The government also expects manufacturing, agriculture and mining recover next year.
The manufacturing sector is forecast to recover by 7 percent in 2021. “Chemicals and rubber products are projected to continue to grow strongly, benefiting from higher demand for rubber gloves and pharmaceuticals,” according to the economic outlook. .
READ: Comment: What struggling Malaysians need from this budget is a stronger safety net and higher taxes
Agriculture, which contracted 3.9 percent in the first half of 2020, is expected to rebound by 4.7 percent next year, mainly supported by higher production of palm oil and rubber.
“The oil palm subsector is expected to rebound following improvements in global demand, particularly from China and India.
“The rubber subsector is expected to increase as global demand for natural rubber increases in line with the expansion of the auto industry,” the government said.
Construction is expected to expand by 13.9 percent next year, after a 18.7 percent contraction this year due to the acceleration and reactivation of major infrastructure projects, along with affordable housing projects.
Major infrastructure projects include Mass Rapid Transit 2, Light Rail Transit 3, West Coast Expressway, and Bayan Lepas Light Rail Transit, as well as Pan Borneo and coastal highways in Sarawak.
A general view shows the Petronas Twin Towers and other commercial buildings, as seen from the KL Tower, in Kuala Lumpur, Malaysia, on October 13, 2020 (Photo: AFP / Mohd Rasfan).
Gross exports are estimated to expand 2.7% in 2021, after a projected 5.2% decline this year.
The current account surplus for 2020 is expected to be RM48.5 billion, due to the increasing deficit in the services account. Expansion of domestic investment and industrial activities is expected to reduce the surplus to RM20.3 billion, or 1.3% of gross national income, next year.
After a dismal economic performance in 2020 due to the COVID-19 pandemic, the Malaysian economy is expected to recover firmly in 2021, in line with expectations for a more synchronized global recovery.
“At the same time, domestic demand is projected to register sustained growth, supported by improvements in labor market conditions, low inflation and favorable financing conditions, as well as by the reactivation of major infrastructure projects. All sectors of the economy are expected to recover, and the service and manufacturing sectors will continue to lead growth, ”the government said.
