Economists predict bigger budget to fund recovery, welfare

Raevathi Supramaniam

Universiti Utara Malaysia’s Irwan Shah Zainal Abidin says the government must prioritise the people in Budget 2022. – The Malaysian Insight pic by Afif Abd Halim, September 16, 2021.

PUTRAJAYA is likely to announce an expansionary budget for 2022 as the country moves towards economic recovery amid the lingering Covid-19 threat, economists said.

They said a bigger budget is necessary to address poverty arising from the epidemic and food and job security as well all support small and medium-sized businesses as economic and social activities resume.

Last year, the government announced its largest-ever budget at RM322.5 billion. Budget 2022 is expected to exceed this figure.

Irwan Shah Zainal Abidin, associate economics professor at Universiti Utara Malaysia, said the government must prioritise the people in Budget 2022.

“This is the first budget of Prime Minister Ismail Sabri Yaakob, where he must demonstrate how the Keluarga Malaysia concept translates into concrete development policies, which can provide a foundation and ecosystem for the ‘Malaysian family’ as a whole to prosper and thrive during the pandemic era and post-pandemic economy,” he told The Malaysian Insight.

He said attention must also be given to the execution of medium and long-term economic policies.

“Structural issues of the economy such as the middle-income trap must be addressed in the upcoming budget as well,” he said.

In a pre-budget briefing, the Finance Ministry said there is a need to increase the statutory debt limit to provide more fiscal room to strengthen the domestic economy and ensure a sustainable recovery.

To this end, Finance Minister Tengku Zafrul Tengku Aziz proposed to raise the statutory debt ceiling from 60 to 65% of the gross domestic product (GDP).

The debt ceiling was raised to 60% in August last year. Prior to that, the debt limit was last increased during the financial crisis of July 2009.

Current debt to GDP stands at 56.8% as of June 1 while the deficit has increased to between 6.5% and 7%.

Universiti Malaya economist Prof Rajah Rasiah says in order to bolster foreign direct investment, the government must introduce incentives to attract investors. – The Malaysian Insight pic by Afif Abd Halim, September 16, 2021.

Boosting investment

In order to bolster foreign direct investment (FDI), which has taken a hit due to the epidemic, Universiti Malaya economist Prof Rajah Rasiah said the government must introduce incentives to attract investors.

“It will be good to see the budget extend incentives and grants for FDI that are focused on stimulating industrial upgrading in the country,” he said.

“A focused committee comprising officials from Miti (International Trade and Industry Ministry), specialist academics and industry experts must be created to influence the selection of companies alongside a clear roadmap that must be reviewed stringently over time to bring industries identified as strategic to reach the technology frontier.

“It is important to note that Malaysia is not a capital scarce country and, hence, its focus should be on quality FDI that will help the country upgrade.”

The Finance Ministry, in its briefing, said a tax incentive framework is being drafted to offer quality foreign and local investors tax incentives that are relevant and attractive and that will generate good returns for the country.

Last year, FDI contracted by 54.5% to RM14.6 billion from RM32.4 billion in the previous year.

In the first quarter of 2021, FDI stood at RM9.1 billion, compared with RM6.8 billion in the fourth quarter of 2020. 

Calvin Chen, senior economic analyst at the Institute of Strategic and International Studies, said while the government has expressed commitment to helping businesses recover from multiple lockdowns, it needs to provide enough cash assistance in the upcoming budget.

“More cash-based assistance in the form of grants and subsidies to smaller businesses must be made easily accessible to businesses without applications for the grants being a barrier,” he said.

The grants and subsidies must also be disbursed in a timely manner while the government should consider committing to long-term aid, he said.

“Give businesses greater policy certainty such as (for public health standard operating procedures), allow them to operate safely, give greater clarity about future changes in procedures,” he said.

After three continual lockdowns to curb the spread of Covid-19, the government is reopening the economic and social sectors. This has translated into positive growth in the second quarter of the year, with the GDP rebounding to 16.1% after four quarters of negative growth.

Stimulus packages and cash aid

Irwan said the government should continue and expand existing economic stimulus packages beyond 2021 while the economy is still in recovery mode.

It is premature of the government to roll off the economic package aid before the national recovery plan comes to fruition at the end of the year, he said.
Rajah said cash aid for the poor and small businesses must be extended in the budget as the assistance has been “conservative” and slanted towards shielding the financial sector.

“The budget should at least focus more on supporting the poor and small businesses from further impoverishment and death,” he said.

The government has introduced six economic stimulus packages worth RM580 billion combined.

It has disbursed RM114.6 billion to the small and medium enterprises via a financing scheme, loans and wage subsidies, among others.
It has also spent RM11.2 billion on initiatives to shore up the commodities and tourism sectors and on frontline workers’ allowances and Covid-19-related incentives.

Tengku Zafrul announced earlier this week that RM12.3 billion of the RM17.1 billion allocated for special Covid-19 aid has been distributed among almost 10 million recipients. – September 16, 2021.

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