KUALA LUMPUR (Nov 6): The Government expects its fiscal deficit to swell to 6% of Gross Domestic Product (GDP) in 2020 — the largest gap since the Global Financial Crisis in 2009, due to the additional stimulus packages to lift the country’s economy out of the doldrum plus lower GDP as a result of the COVID-19 outbreak.

The original forecast of the fiscal deficit was at 3.2%, compared with 3.4% recorded in 2019, according to the Economic Report 2021 released by the Ministry of Finance.

Excluding debt service charges, the primary balance is estimated to record a higher deficit of 3.6% in 2020 versus 1.2% in 2019. Still, the primary deficit gap is narrower compared with 4.7% in 2009.

There is an estimated public revenue shortfall, estimated at around 20% from the budget estimates. In the Fiscal Policy review, the Ministry of Finance said the lower than expected revenue will be cushioned by additional dividends and a special contribution from Government entities such as Petroliam Nasional Bhd (Petronas), Khazanah Nasional Bhd and Retirement Fund (Inc) (KWAP).

“Total (public) revenue is revised to be lower at RM227.3 billion, or 15.8% of GDP compared with the budget estimates at RM244.5 billion,” said the review.

In contrast, the total public expenditure is expected to increase by 6%, or RM17.7 billion to RM314.7 billion compared with initial estimates of RM297 billion.  

“The net increase is due to the fiscal stimulus injection of RM38 billion offset by savings of RM20.3 billion from the revision of existing programmes and projects, as well as the shortfall in spending from budget estimates,” said the review.

There is an expected total saving of RM9.3 billion from operating expenditure (OE), which include fuel subsidies, supplies and services and grants to statutory bodies, plus an expected shortfall of RM11 billion in development expenditure following the revision and rescheduling of several projects due to the Government’s Movement Control Order (MCO).

In 2020, the OE is estimated to be lower by 5.9% at RM226.7 billion compared with the original estimate of RM241 billion, mainly due to savings and reclassification of development-related items.

The DE is expected to be 11% lower at RM50 billion against the original budgeted sum of RM56 billion, taking into account spending shortfalls and the reclassification of several development-related items from OE.

For more stories on the Economic Report 2020/2021, click here.