Budget 2021 signifies the country's first short-term fiscal priorities during a historical pandemic. It sets the tone for the federal government's budgets in the coming years as we await the unveiling of the 12th Malaysia Plan (12MP) in early 2021.
The government faces a difficult trade-off in stimulating demand at a time when supply faces intermittent disruptions. There are clear-cut attempts to ensure that fiscal discipline is kept in check, most notably by establishing a separate emergency-themed financial account under the COVID-19 Fund. As a developing economy, in general, we feel that the government could have taken a much bolder step by employing a short-term debt stabilisation policy at this time of crisis.
Our underlying concern about Budget 2021 is focused on revenue collection rather than expenditure. We applaud the government's move to expand expenditure as widely as it possibly can to reach every segment of the population. However, improving the revenue-to-GDP ratio must be a continuous effort to enable development expenditure (DE) to move in tandem with operating expenditure (OE).
We do not anticipate a downgrade on the horizon following the unveiling of this Budget. However, the government's middle- to long-term fiscal priorities may need to translate to bold reforms in order to mitigate such a risk.
All in all, economic recovery is contingent upon how quickly governments can normalise economic activities internally as well as externally post-COVID-19. As one of the world's largest trading nations, the reopening of Malaysia's borders will allow for a speedier trajectory towards full recovery.
MARC's full commentary on Budget 2021 can be accessed here.
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