ECONOMISTS are anticipating an expansionary budget for 2021 as Muyhyiddin Yassin’s administration tries to revitalise the economy reeling from the effects of the Covid-19 pandemic.

The Perikatan Nasional (PN) government will table its first national budget on November 6, after ousting Pakatan Harapan from federal power in late February.  

To date, Putrajaya has spent RM290 billion on the Prihatin and Penjana economic stimulus packages, which are expected to widen the financial deficit to between 5.8% and 6%.

It remains to be seen if Putrajaya will spend more money to spur economic growth through an expansionary budget, or if it will cut down on spending and resort to an austerity drive.

Economists told The Malaysian Insight they expect the budget to be expansionary.

“We expect Budget 2021 to be an expansionary budget to revitalise the country’s economic growth, as the world economy is still facing challenges from the Covid-19 pandemic,” said MIDF Research economist Abdul Mui’zz Morhalim.

The budget will likely see initiatives that support growth and are geared towards boosting job creation and sustaining employment.

More assistance and support programmes for small and medium enterprises (SMEs) are also expected, he said.

“As part of initiatives to enhance social protection, there could be programmes to assist those in the most vulnerable groups, such as employees in the informal sector and self-employed individuals,” said Mui’zz.

It is likely that the government will prioritise spending on areas with high multiplier effects, such as education, technology and connectivity.

Apart from that, infrastructure and development plans, which have been put on hold due to the pandemic, might resume.

Senior research fellow at the Malaysian Institute of Economic Research (MIER) Dr Shankaran Nambiar said the lack of sources of economic growth from the external sector due to global developments may pressure Putrajaya to go for an expansionary budget.

The government will find it is imperative to spur the domestic economy as the rest of the world is also dealing with economic challenges from Covid-19.

“The outlook for this year is poor and it’s likely to extend into the following year.

“While there is some improvement to global trade and investment, most international institutions are bleak on their forecasts for 2021, with some projecting a contraction in the double-digits.  

“Most of our trade partners, with the exception of China, are expected to experience soft growth rates next year,” Nambiar said.

He said domestic demand will have to rely heavily on an expansionary budget if it is to drive economic growth and mitigate the effects of a “grey global scenario”.

Tackling the fiscal deficit

Mui’zz also expects the government to outline its medium-term plan to improve its fiscal position, since Finance Minister Tengku Zafrul Tengku Abdul Aziz has expressed Putrajaya’s commitment to lowering the financial deficit to less than 4% of gross domestic product (GDP) within four years.

The country’s financial deficit is expected to increase to between 5.8% and 6% of GDP this year following the implementation of the Penjana and Prihatin programmes.

As such, Mui’zz said Putrajaya might consider measures in Budget 2021 to broaden sources of financial revenue and reduce direct financial spending by promoting public-private partnerships (PPPs) for new development plans.

Meanwhile, OCBC Bank economist Wellian Wiranto said the government’s move to raise the self-imposed debt ceiling from 55% of GDP to 60% will provide some room for financial spending.

He expects the financial deficit to narrow down to the range of 4.8-5.2% of GDP after widening to the projected 6% this year.

“While the recent temporary increase of the debt/GDP ratio ceiling from 55% to 60% allows for more leeway in financial spending, we expect the government to still be telegraphing a general path towards financial consolidation.

“The relative cut in financial deficit may sound like an austerity measure on the surface, but it is fairer to characterise it as a ‘financial normalisation’ move, as the country can, hopefully, start to exit from the extraordinary circumstances of 2020,” he said.

The PH government had allocated RM241 billion in operating expenditure and RM56 billion in development expenditure under Budget 2020.

Tengku Zafrul, who will be tabling his first government spending plan after being appointed finance minister, had previously said that Budget 2021 will be framed across four broad themes: caring for the people, steering the economy, sustainable living and enhancing public service delivery. – September 19, 2020.