KUALA LUMPUR (Sept 27): True to expectations of higher public spending to rejuvenate and revitalise the economy post Covid-19, total development expenditure under the 12th Malaysia Plan (12MP) (2021-2025) is the country’s largest-ever at RM400 billion — 54% more than the RM260 billion originally allocated under the 11MP (2016-2020).

The allocation implies that some RM82.95 billion a year, on average, and RM331.8 billion in total could be allocated as development expenditure between 2022 and 2025 by the federal government under its annual Budget. This is given that development expenditure for 2021 was revised to RM68.2 billion in the pre-Budget statement released on Aug 31, compared with RM69 billion tabled under Budget 2021 last November.

That does not necessarily mean Budget 2022 would see close to RM15 billion or about 1% gross domestic product (GDP) year-on-year (y-o-y) jump in development expenditure. Citing the country’s fiscal position, Minister in the Prime Minister's Department (Economy) Datuk Seri Mustapa Mohamed told The Edge last week that “more resources will be made available for development expenditure from 2023 onwards when Covid-19 is expected to be endemic and the economy returns to normalcy”.

Still, the 12MP said: “Fiscal policy will be expansionary in the short term to revitalise the economy after the Covid-19 pandemic. Fiscal consolidation will resume once the economy is on a better footing to ensure long-term fiscal sustainability. As such, the fiscal balance is targeted to be between -3.5% and -3% of GDP in 2025.”

The fiscal deficit is expected to be between 6.5% and 7% of GDP this year and the government has said it will raise the statutory debt ceiling to 65% of GDP from 60% currently. The ceiling of the special Covid-19 Fund will also be raised from RM65 billion to RM110 billion, given that RM38 billion was used in 2020 and the remaining RM27 billion is earmarked for 2021 (up from RM17 billion originally tabled under Budget 2021).

According to the 12MP, the introduction of the Fiscal Responsibility Act will institutionalise fiscal sustainability principles and help ensure long-term fiscal sustainability.

There was no specific mention of the reintroduction of the goods and services tax (GST) but the 12MP said federal government revenue “will be enhanced by exploring new sources, expanding the revenue base, reviewing tax incentives, strengthening overall tax administration and adopting a medium-term revenue strategy”.

Putrajaya also plans to introduce a medium-term budgeting and expenditure framework as well as undertake public expenditure reviews and improve public procurement management to ensure greater spending efficiency and effectiveness.

“The medium- and long-term debt and liabilities management will continue to be enhanced with the implementation of accrual accounting, the introduction of the medium-term debt strategy, the establishment of the Debt Management Office as well as the enhancement of the government guarantees framework.”

Public investment, which contracted 7.9% per annum during the course of the 11MP (2016-2020), is expected to grow 2.6% per annum under the 12MP (2021-2025), driven by federal government development expenditure and capital spending of non-financial public corporations (NFPCs).

“Investments will be largely in infrastructure, transport, utilities as well as the oil and gas (O&G) industry,” the 12MP said.

Major public sector projects that will be undertaken include the East Coast Rail Link (ECRL), Johor Baru-Singapore Rapid Transit System and the Pan Borneo Highway.

“In view of the constraints in the allocation of development expenditure, these projects will be implemented in phases to ensure fiscal sustainability.”

Public consumption is expected to expand by 3.7% per annum under the 12MP (3.2% per annum under the 11MP) in line with measures taken to reduce the impact of the Covid-19 pandemic and stimulate the economy.

Six less developed states — Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis — which were originally allocated 46% of the total development expenditure under the 11MP, will continue to be prioritised “with at least 50% of the total basic development expenditure” in the development budget allocation for the 12MP.

Allocations under the 11MP for these six states are mainly for the implementation of infrastructure projects, including roads, water supply, drainage and irrigation as well as agriculture projects to ensure more balanced development among states. Access to basic services in rural areas, such as primary healthcare, education and affordable housing, would be further enhanced.

According to the 12MP, collaboration between the federal government and the state governments will be strengthened to promote sustainable and balanced development across the regions to accelerate the provision of basic infrastructure and amenities as well as generate more economic opportunities in the less developed states to reduce the development gap.

“State policies, such as the Smart Selangor Action Plan 2025, Pelan Induk Terengganu Sejahtera 2030 and Perlis Digital Plan 2021-2025 will be aligned with the national digital transformation objectives,” the 12MP read, adding that state-initiated improvement of logistic services, river management and the development of the aerospace industry will also be mapped with the respective development policies at the federal level.

In addition, the role of key agencies at the state level will be streamlined to support more effective development planning and coordination, particularly in the six less developed states. “This will involve rationalising the role of all state economic development corporations (SEDCs), state economic planning units, regional development authorities and regional economic corridor authorities,” the 12MP read.

“The 12MP is expected to rejuvenate and reposition Malaysia in the global economy. It will catalyse growth, ensure economic recovery and rebuild the economy to achieve prosperity, inclusivity and sustainability. Economic growth will be accompanied by more equitable wealth distribution to narrow disparities across income groups, ethnicities and geographic regions while ensuring environmental sustainability."