Economists positive on Malaysia's largest budget on record, but note execution and transparency are key

Economists positive on Malaysia's largest budget on record, but note execution and transparency are key
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KUALA LUMPUR (Nov 6): Economists are positive that Malaysia's RM322.5 billion Budget 2021, its largest national budget on record, will help the country revitalise its pandemic-hit economy and put it on the recovery path.

UOB Malaysia’s senior economist Julia Goh

UOB Malaysia’s senior economist Julia Goh, who described the budget as “highly expansionary and extensive”, said there is "a need to upsize the spending at this critical juncture of the economic recovery”, and that the passing of the Temporary Measures for Government Financing (Covid-19) Act 2020 provides the scope for the government to spend more, with a temporary reprieve from fiscal discipline.

“All short- and medium-term measures announced in this budget are crucial in supporting the economy from crisis to recovery, provide further impetus for economic growth which is targeted at 6.5%-7.5% in 2021, and help narrow the economic and social divide exacerbated by the pandemic,” Goh told The Edge.

The projections for a narrower fiscal deficit of 5.4% of GDP in 2021, and a lower average of 4.5% in 2021-2023, also signal a commitment to resume its path of fiscal consolidation once the economy stabilises, Goh said.

So what is key at this juncture is “efficient spending and execution", especially given the sizeable public outlay, she said. "Efficient planning, timely execution, enhanced transparency, and accountability — these could be challenging in a post-pandemic new normal,” Goh observed.

Bank Islam's chief economist Dr Mohd Afzanizam Abdul Rashid

To Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid, the all-time high allocation of RM322.5 billion clearly signifies that the government is on an expansionary mode to ward off the impact of Covid-19.

“It’s a delicate balance between meeting the citizens' demands and to stimulate the economy. Obviously, the government is taking a balanced approach. On one hand, there is targeted withdrawal from Account 1 for EPF members, with a targeted moratorium for the B40, and aid for recipients of Bantuan Prihatin Rakyat (BPR) and the microenterprises,” he noted.  

On the other hand, it is focused on stimulating the domestic economy, given the significant increase in development expenditure (DE) to RM69 billion, from the RM56 billion budgeted for this year.

“This is in tandem with the sharp growth of 13.9% growth [projected for] the construction sector in 2021, from a massive decline of 18.7% in 2020. The government has indicated a total RM15 billion will be provided to fund the various infrastructure projects such as the Pan Borneo Highway, Electrified Double Track Gemas-JB rail and MRT3, among others. All in all, it should be positive as the government is trying to prioritise its spending with fighting Covid-19, while ensuring those who are affected by the pandemic will receive targeted assistance,” Mohd Afzanizam said.

MIDF Research also holds the view that the expansion in DE is positive, given the need to support the revitalisation of the economy and provide a better quality of life and living environment to its people.

“We believe it is important the DE continues to be channelled to programmes and projects with high multiplier impact,” said Imran Yassin Md Yusof, MIDF's head of research.

MIDF head of research Imran Yassin

MIDF Research expects the economy to remain on a recovery path in 2021, with a growth of about 7%, compared to the government's projection of a growth of between 6.5% and 7.5%. For 2020, the local research house maintained its forecast of a 4.8% contraction, versus the government's 4.5% projection.

Besides revitalising the economy, Budget 2021 also reflects the government’s commitment to provide support to the Bottom 40 (B40) group impacted by the Covid-19 pandemic, said MIDF Research.  

Meanwhile, another head of research of a foreign research house described Budget 2021 as “fair”, and one that “covered a lot of bases”.

“Most importantly, healthcare issues are addressed and support for Covid extended,” she added. 

Tan Choe Choe