Business Economics

Budget 2020 likely be either austere or recession-based budget

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Zaidi Azmi
Written by Zaidi Azmi

Every five years the Malaysian government will charter a new development plan, aptly called the ‘Malaysia Plan’ (MP) which will essentially serve as a blueprint for the country’s development.

In the current 11th plan, it was projected that the country needed to allocate RM260 billion for the developmental needs of the country between 2016 and 2020. However, in October last year, the projection was cut to RM220 billion.

The revision -done due to the government’s debt-rationalisation- had thus reduced the projected development expenditure for next year to RM23.6 billion, which will be a huge drop of 56.8 per cent compared to 2019’s allocation of RM54.7 billion.

While economists figured that it is unlikely for the government to allocate a mere RM23.6 billion for 2020’s development expenditure, they do agree that budget that will be announced late this year will be that of an austere expenses plan.


KUALA LUMPUR — August 29, 2019: The Pakatan Harapan government proved many economic pundits wrong when it tabled the well-heeled Budget 2019, in October last year, as it contradicted the narrative of the country’s weak fiscal position.

For Budget 2020 however, it is doubtful that a similar feat can be done.

In fact, the budgeting for next year was supposedly so challenging that it fuelled a talk that its scheduled tabling on October 11 will probably be delayed to the following month.

For Associate professor Dr Ahmed Razman Abdul Latif of Putra Business School, Universiti Putra Malaysia, last year’s review of the 11th Malaysia Plan’s development expenditure projection was one of many telltale signs of next year’s belt-tightening budget.

The review of the five-year plan’s development expenditure of RM260 billion to RM220 billion essentially meant that the projected allocation for such a matter was reduced to a mere RM23.6 billion.

“I don’t think they will only allocate RM23.6 billion for 2020’s development expenditure. They will increase the allocation,” said Razman adding that he foresaw a minimum of three per cent deficit budgeting for 2020.

Overview of Malaysia’s budget 2018 and 2019

Category

2018

2019

Percentage difference

Total Allocation

RM280.25 billion

RM314.5 billion

↑12.2

Revenue Collection

RM239.9 billion

RM261.8 billion

↑9.12

Fiscal Deficit

2.8 per cent

3.4 per cent

 

Operating Expenditure

Total Allocation

RM234.45 billion

RM259.8 billion

↑10.8

Development Expenditure

Economic Sector

RM26.34 billion

RM29.2 billion

↑10.8

Social Sector

RM11.72 billion

RM15.2 billion

↑29.6

Security Sector

RM5.22 billion

RM7.1 billion

↑36.0

General Admin.

RM2.72 billion

RM3.2 billion

↑17.6

Total

RM46 billion

RM54.7 billion

↑18.9

The other signs which he believed pointed towards the austere nature of Budget 2020 were uncertainties over prices of commodities and the ongoing debt restructuring and the tariff war between the United States and China.

“There is not much for the government to manoeuvre when presenting Budget 2020. The government still need to focus on creating new industries and identifying new form of revenue to ensure its sustainability.

“Failure doing that will expose our country to external shocks to such extent that the recovery process will be very hurtful to the people especially those who belong to B40 group (what Malaysia calls its lower-income group),” said Razman.

While Razman predicted a belt-tightened budget, independent economist Professor Dr Hoo Ke Ping argued that next year’s budget will be a recession-bracing budget.

“Malaysia’s budget for 2020 would have a very constrained revenue stream. It will be a budget for recession,” said Hoo.

Such a case, he said was likely so given the unpleasant slump of Malaysia’s four China-borne big income which are falling petroleum prices, dip in Chinese tourist arrivals, and the tumbling of palm oil and timber prices.

Hoo believed that Malaysia will face a recession soon, one that is similar to that of 2015’s, as global purchasing managers index (PMI) has been down for many months which will likely cause the price of oil -one of Malaysia’s main export- to crash.

“Our budget deficit will probably be higher than three per cent. Unless, of course, if the government cuts a lot of expenses for development but if it is overdone then it’ll only expedite the recession.

“It looks like they will have to rely on bonds. More samurai or panda bonds, I guess,” said Hoo.

Four weeks ago, it was reported that Malaysia’s Nikkei PMI had been declining for three consecutive months and remained below entrepreneurs’ confidence since October last year.

Three days ago, Prime Minister Tun Dr Mahathir Mohamad said that the government is mulling in accepting another Samurai bond from Japan after it last did so in November last year where it was guaranteed RM7.4 billion with a 10-year tenure.

Three weeks ago, Bank Negara reported that Malaysia’s external debt stood at RM931.1 billion or 61.3 per cent of gross domestic product at the end of last June. Under the previous administration, the figure stood at RM686.8 billion.

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About the author

Zaidi Azmi

Zaidi Azmi

If Zaidi Azmi isn’t busy finding his way in the city, this 26-year-old northern kampung boy can be found struggling to make sense of the Malaysian political scene. Zaidi can be reached at [email protected]