THE federal government is projecting a lower revenue for this year as a result of Covid-19, while expenditure is expected to increase by 6%. 

According to the Finance Ministry’s Fiscal Outlook and Federal Government Revenue Estimates 2021 report, the government has lowered its total revenue to RM227.3 billion – 15.8% of gross domestic product (GDP) – compared to budget estimates of RM244.5 billion. 

“Revenue performance is expected to be negatively affected amid slower domestic economic activities and lower crude oil prices assumption due to the Covid-19 pandemic,” the report said. 

The ministry said the revenue shortfall, estimated to be around 20% from the budget estimates, will be cushioned by special contributions from government entities such as Khazanah Nasional Bhd, Petronas and Retirement Fund Inc.

Meanwhile, the federal government’s expenditure is expected to increase by 6% or RM17.7 billion to RM314.7 billion compared to the 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,” the report said. 

The RM20.8 billion savings comprise RM9.3 billion from the operating expenditure (OE), which includes fuel subsidies, supplies and services and grants to statutory bodies. 

Meanwhile, the revision and rescheduling of several projects due to the movement-control order will result in a RM11 billion savings from the development expenditure (DE). 

As such, the OE is estimated to be rationalised by 5.9% to RM226.7 billion from the original estimates of RM241 billion, mainly due to the savings and reclassification of development related items.

The DE, on the other hand, is expected to decrease by 11% to RM50 billion from the budget estimates of RM56 billion, after taking into account spending shortfalls and the reclassification of several development related items from the OE. 

“The spending for the stimulus packages and recovery plan under the newly created Covid-19 fund will be based on the estimated disbursement at RM38 billion, with the balance to be carried over the following years,” it said.

Pump priming measures as well as lower GDP growth and revenue collections will result in the widening of the fiscal deficit to 6% of the GDP.

National debt

As at September-end, the national debt and liabilities were estimated to the tune of RM1.256 trillion, equivalent to 87.3% of the GDP.

The federal government’s debt increased from RM793 billion (52.5% of the GDP) in 2019 to RM874.3 billion (60.7% of the GDP) at the end of September.

Government guarantees, which is another component of the national debt and liabilities, rose to RM177 billion as of September-end, from RM162.1 billion for the full year of 2019. 

The outstanding debt for 1Malaysia Development Bhd (1MDB), on the other hand, stood at RM32.3 billion. 

“Since April 2017, up to September this year, the government has financially assisted 1MDB in the form of loans advances of RM9.4 billion to meet the fund’s financial commitments and debt servicing,” it said. 

The ministry has also placed recovered assets linked to 1MDB – worth RM13.4 billion – into a dedicated trust fund.

The said assets include the mixture of physical items and cash worth RM2.6 billion seized by the United States Department of Justice as well as the US$2.5 billion settlement received from Goldman Sachs.

Other liabilities amounted to RM173.3 billion, which is lower than the RM182.2 billion recorded last year.

Fiscal outlook for 2021

Putrajaya is expecting a higher revenue of RM236.9 billion or 15.1% of the GDP for 2021, in line with the projection of higher tax revenue collection of RM174.4 billion and non-tax revenue of RM62.5 billion. 

Expenditure is estimated to amount to RM322.5 billion or at 20.5% of the GDP. Of this, the OE, which mainly covers emoluments, debts service charges as well as supplies and services, is expected to take up RM236.5 billion.

The DE, which is budgeted at RM69 billion, will be spent on infrastructure projects and education and training.

“In addition, the government will provide a sizeable allocation to ensure better quality healthcare and accessibility to health services for ongoing projects, including the construction of pathology laboratories and procurement of medical equipment,” it said. 

“The government will ensure a swift implementation of the economic stimulus packages and recovery plan under the Covid-19 fund,” it added.

Fiscal deficit is expected to narrow to 5.4% of the GDP in 2021. 

“Nevertheless, the government is committed to gradually consolidate its deficit level in the medium-term and resume its fiscal consolidation trajectory without disrupting the momentum of economic recovery and long term development agenda,” it said. – November 6, 2020.