Malaysia unveils biggest budget to spur post-Covid recovery

Kuala Lumpur

MALAYSIA on Friday announced a spending plan for 2022 that is its largest on record, aiming to get the economy back on track for growth following a year largely spent under lockdown.

The government is allocating RM332.1 billion (S$107.9 billion) to drive recovery, according to reports released alongside the budget. Although that's about 3 per cent larger than the budget passed a year ago, the fiscal deficit is expected to narrow to 6 per cent of gross domestic product, from 6.5 per cent this year.

"Budget 2022 supports three main axes: strengthening the recovery, building resiliency and driving reforms," Finance Minister Zafrul Abdul Aziz said in parliament on Friday, adding that the government aims to provide fiscal support to people and businesses to help them recover from the pandemic.

Further reopening and increased global demand, coupled with higher commodity prices and implementation of infrastructure projects, will boost economic growth to 5.5-6.5 per cent in 2022, Zafrul said. He maintained this year's GDP projection at 3-4 per cent growth.

Malaysia's economy was battered by political turmoil and tight movement restrictions for most of 2021, leading the government to miss many of the growth and financial projections outlined in the previous budget. Total spending for this year was cut to RM320.6 billion as revenue trailed the target by 6.7 per cent - lower even than in 2020, when the pandemic began. The previous government, which collapsed in August over its handling of the pandemic, revised its 2021 growth forecast and budget deficit twice.

Malaysia's main stock index traded little changed at 4.45pm local time, while the ringgit held gains.

Still, Malaysia's rapid vaccine rollout is fuelling hopes to fully open the economy by year-end. Interstate travel resumed this month after 90 per cent of adults received a full course of Covid inoculations, with a pilot international tourism bubble launching in Langkawi island next month. Malaysia's healthcare system is no longer burdened, Zafrul said.

The bulk of the budget will be funded by higher tax collections, borrowings and use of government assets, according to the report. The country will return to fiscal consolidation gradually, with the government expecting the deficit to average 5 per cent of GDP from 2022-2024.

Other highlights:

• Cash handout of RM2,000 to households earning less than RM2,500;
• Revenue is projected at RM234 billion, aided by a jump in tax collection to RM171.4 billion and in non-tax revenue to RM62.6 billion;
• The government will prioritise domestic market issuance for borrowings; overall federal debt is projected to reach 66 per cent of GDP, while statutory debt will reach 63.4 per cent by end-2022;
• Monetary policy is expected to remain accommodative and supportive of recovery, while ensuring that prices remain manageable;
• Government expects RM25 billion in dividends from Petronas in 2022, and RM5 billion from the central bank;
• Government sets aside RM4.8 billion to create jobs;
• RM23 billion is allocated for stimulus measures, thanks to a higher ceiling for the Covid-19 Fund approved this month. The bulk of it will be used for cash and social assistance, and a wage subsidy programme carried over from 2021;
• RM75.6 billion is set aside for development spending (2021: RM62 billion), with economic and social sectors receiving RM40.2 billion and RM22.7 billion, respectively;
• RM8.7 billion will be spent on new projects, such as upgrading roads and bridges, while the agriculture sub-sector will get RM2.9 billion for programmes such as oil palm and rubber replanting; and
• 1MDB's outstanding financial obligations stand at RM39.3 billion as of September. The government has paid up to RM12.8 billion for the fund's commitments and debt servicing.