Malaysia unveils RM322.5b budget to boost recovery

Kuala Lumpur

MALAYSIA on Friday unveiled a 2021 budget that will increase spending on social sectors and infrastructure, aiming to soften the blow from the coronavirus pandemic and get the US$365 billion economy back on course for rapid growth.

The RM322.54 billion (S$105.23 billion) spending plan is 8.5 per cent larger than the one passed a year ago, though additional stimulus since then have narrowed the difference. The fiscal deficit is projected at 5.4 per cent of gross domestic product, down from 6 per cent expected this year, the finance ministry said in a report released alongside the budget.

"The socio-economic impact of the pandemic is expected to run its course until next year," Prime Minister Muhyiddin Yassin said in the report. "Hence, the 2021 budget will still focus on protecting lives and livelihood, with additional measures to cope with the lingering effects of the pandemic on the economy as a whole."

The government estimates that the new budget, combined with US$73 billion of stimulus announced earlier this year, will drive the economy - currently mired in recession - to 6.5 per cent-7.5 per cent growth next year. That outlook hinges on controlling the pandemic and on a sustained recovery in global demand.

The country's key stock index rose 1.2 per cent at the close as Finance Minister Zafrul Abdul Aziz delivered the budget in parliament. That's on top of Thursday's 2.5 per cent spurt, which was the biggest gain since March.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The first national budget since the pandemic hit, the plan must be approved by month-end. It will put Mr Muhyiddin's razor-thin majority to the test amid discontent from the premier's biggest ally and opposition parties.

Next year's GDP forecast marks a sharp rebound from the 4.5 per cent contraction the government expects this year, which would be Malaysia's worst showing since 2006. The central bank earlier this week projected that the economy would shrink 3.5 per cent to 5.5 per cent in 2020.

Next year's growth forecast isn't unachievable, but a lot hinges on how the global recovery goes, according to Winson Phoon, head of fixed-income research at Maybank Kim Eng Securities Pte in Singapore.

"The growth target of 6.5 per cent-7.5 per cent next year doesn't look stretched considering the low base effect after a contraction of 4.5 per cent this year based on official forecasts," Mr Phoon said. "Obviously these forecasts need to rely on a quick global recovery from the pandemic, and it is not without downside risks depending on the evolving Covid-19 situation."

The government is earmarking RM69 billion for development spending - up 38 per cent from 2020 - with RM15 billion to be spent on transport. Another RM17 billion will be channelled to a Covid-19 Fund set up earlier this year, while spending on healthcare is being bumped up 64 per cent to RM4.7 billion. Spending on the social sector will increase by 40.7 per cent and transport by 47.5 per cent, while spending on trade and industry is set to rise by 28 per cent. Among the budget's key proposals: One-time aid worth RM6.5 billion for 8.1 million eligible people.

There is a one-percentage point cut in income tax, and a tax reduction for those earning between 50,001 to 70,000 ringgit annually.

The government also announced RM1.5 billion in wage subsidies and RM2 billion to boost hiring incentives and gave stamp-duty exemption for first home purchase, and RM1.2 billion for public housing projects.

RM11.1 billion will go towards development among the country's indigenous ethnic groups and RM2.7 billion for rural infrastructure development.

Malaysia's giant glove companies - Top Glove Corp, Hartalega Holdings Bhd, Supermax Corp and Kossan Rubber Industries Bhd - will donate RM400 million to bear some of the cost of a coronavirus vaccine.

"This is very much a Covid budget, where obviously the government is spending big in order to restart the economy," said James Chin, a Malaysian academic and political analyst who heads the Asia Institute at the University of Tasmania.

"This is consistent with all the other countries around the world, where governments are overspending to restart the economy."

Government revenue is expected to rise 4.2 per cent next year to RM236.9 billion. Tax collection is seen rebounding, although non-tax revenue is forecast to drop by 15.5 per cent next year, mainly due to lower investment income.

Dividends from Petronas, the national oil company, are expected to shrink by almost half in 2021, to RM18 billion. BLOOMBERG