Public PolicySoutheast Asia

A Covidian-age budget: Malaysia to announce its budget for 2021

Malaysia is set to announce its budget for 2021 this coming 6 November.

How will the Malaysian budget look like? How different will this budget be compared to the pre-covid 19 budget statements.

One certainty is that Malaysia’s budget deficit is set to breach its self-imposed limit of 5.5% of the GDP. For this coming budget, many are expecting the country’s deficit to edge close to 6 percent of GDP.

Given the extraordinary times that all countries are in, this new deficit threshold should not come as a surprise.  No one could argue that there is every reason to inject more verve into the economy especially when growth for this year is set to be – 3.4%. So far this year, total fiscal injection has been in the range of 20% of GDP, which could see further increase.

What is important now for economies, not just Malaysia, is to have a budget that is attractive enough to resuscitate a weak economy, tackle rising unemployment and improve investment while at the same time set the country on a position of strength once the pandemic is behind us.

For the coming budget announcement, analysts are expecting a slew of counter-cyclical fiscal spending that will see the Malaysia’s debt rising to about 60% of GDP.

There’s also been no short of suggestions for the government to take this difficult episode as an opportunity to make long term strategic adjustment to the Malaysian economy which for a long time has been put on hold. This could take the form of incentivising firms and individuals to move up the value chain. With its trained human resources, pump priming an already competitive infrastructure, could see Malaysia come away stronger post covid-19 episode.

Many are also expecting the government to come up with creative initiatives to improve domestic spending especially when investment and revenue from services have been tepid. This could take the form of in-kind benefits and tax rebates to relieve households and industries from the damaging economic impact of the pandemic. Many are also expecting the government to announce some form of credit facilities to households and firms to ease debt burden and stimulate spending.

Analysts are also expecting small businesses to benefit from the new supply bill especially those operating on new digital platforms. They are expecting the government to provide outright grant to encourage small businesses to spruce up their digital capabilities or transform their business using latest technology. As it is, Malaysian companies have been quite innovative in mobilising the digital technology and a generous fiscal injection would be a much welcome nudge for firms to transform their business further. The bureaucracy also deserves something more from the budget. The bureaucracy deserves special mention because the manner in which it handled the pandemic and the political crisis early this year has been exemplary and, for many, beyond expectations. Certainly more help should be provided to the healthcare sector, especially frontline workers who have been battling relentlessly the spread of the pandemic since early 2020.

In a press statement last week, the country’s finance minister promised that the budget will put the Malaysian economy on a firmer footing. He said that even though the pandemic is making it difficult to predict socio economic recovery and future growth, the outbreak has also given Malaysia a very good excuse to pump more money to move up the production and services value chain.

Minus the details, what is apparent is that the budget will be about saving livelihoods, jobs and creating new opportunities. Hopefully the supply bill will have enough in it to help businesses and individuals tide through these difficult times and provide them with the right tools and incentives not only to brace through this difficult times but also prepare them for a post-Covid 19 recovery.

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