UOB foresees expansionary Budget 2021 with fiscal deficit at 5.7% of GDP

UOB foresees expansionary Budget 2021 with fiscal deficit at 5.7% of GDP
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KUALA LUMPUR (Oct 13): UOB Global Economics & Markets Research expects Malaysia’s Budget 2021 to be expansionary with a projected fiscal deficit of 5.7% of gross domestic product (GDP) (2020 forecast: 6%) and a debt-to-GDP ratio capped below the new ceiling of 60%.

In their budget preview yesterday, UOB senior economist Julia Goh and economist Loke Siew Ting said the stimulus measures in 2020 (including wage subsidies, cash aid for the bottom 40% income group [B40] and M40, automotive sales tax exemption and property-related measures) may be extended into 2021 alongside new measures to support consumption, stimulate investment, accelerate digitalisation, improve job creation and wages, and promote environmental sustainability.

Goh and Loke said the government targets to achieve an economic growth of 5.5% to 8% in 2021, from -3.5% to -5.5% in 2020 (UOB forecasts: +5.5% in 2021; -3.5% in 2020).

“The pace of recovery hinges on the distribution of an effective and safe Covid-19 vaccine, geopolitical risks and US-China relations.

“Barring any negative surprises, we expect Bank Negara Malaysia (BNM) to keep policy rates on hold in the near term,” they said.

UOB expects Budget 2021 to focus on: i) caring for the people; ii) steering the economy; iii) enabling sustainable living; and iv) enhancing public service delivery.

“We do not expect new taxes to be introduced except for a possible pollution tax or carbon tax, and to streamline the existing tax system to further reduce leakages.