Budget 2021 should prioritise high-impact spending

The expected 20% share is insufficient to undertake various mega infrastructure projects such as the KL-Singapore HSR, says analyst


THE allocation for development expenditure in the upcoming Budget 2021 is expected to remain unchanged at 20% of the total budget as the government is likely to prioritise public investments that have high multiplier effects to provide a boost to the economy and employment opportunities.

Sunway University Business School economist Prof Dr Yeah Kim Leng said since 2012, the operating budget has crept up to more than 80% of the total, with the development budget making up the remainder.

The share for development spending then improved to 19.6% in 2018.

“It dipped slightly to 17% in 2019 and its share in Budget 2021 is projected to remain around the same level with an estimated allocation of RM60 billion.

“The amount is insufficient to undertake various mega infrastructure projects such as the Kuala Lumpur (KL)-Singapore high-speed rail (HSR) and such projects will have to depend on public and private partnerships for financing,” he said.

Faced with spending constraint, priority has to be accorded to public investments that have high multiplier effects such as boosting the digital infrastructures where the country is lagging in terms of broadband speed, coverage and user costs, he told The Malaysian Reserve (TMR) yesterday.

Although Budget 2021 is set to be expansionary, it is expected to be crafted with a smaller deficit and a slower debt increase, consistent with the projected recovery in 2021, Yeah said.

An adequate allocation for the health sector would be the top priority given the importance of containing the Covid-19 pandemic to enable the economy to return to normalcy, said Yeah.

This includes an allocation for a national immunisation programme once an effective vaccine is found by early next year.

“The budget’s growth thrust will need to focus on strategies to boost private investments, attract quality foreign direct investment and generate good-paying jobs in the green and technology sectors,” said Yeah.

Besides green investment, Yeah said a combination of public investments and sector-specific transformation strategies are vital to improve water supplies, sanitation, waste disposal and environmental quality, as well as to address shocks from these sectors that disrupt economic activities.

“A higher level of government spending will complement the private sector consumption, investment and net export activities in strengthening the economic recovery expected in 2021,” he said.

An added allocation towards development spending, primarily for investment purposes, would boost the country’s economy in the long run, said Singapore Institute of International Affairs analyst Dr Oh Ei Sun.

He expects the 2021 budget to focus more on short-term aids for those in the bottom 40% and middle 40% income groups, as well as more incentives or exemptions for small and medium enterprises.

“We cannot realistically expect a budget which is heavy on longterm development needs during these unusually difficult times.

“If the development budget could be increased by another 10% overall primarily meant for investment, it would be a huge boost for the long-term socioeconomic viability of the country,” he told TMR.

Progressive think tank Research for Social Advancement recently urged the government to increase its spending in Budget 2021 to revive the economy.

It suggested the government to invest in a green economy, spur job creation and strengthen the social safety net.

Malaysia’s economy is also poised to continue its recovery trend based on the latest economic indicators although risks surrounding Covid-19 remain.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin announced that the leading index (LI) registered an annual increase of 7.6% to 108.5 points in August 2020 from 100.8 points in August 2019.

On a monthly comparison, LI slipped to -0.5% dragged by the number of new companies registered (-0.6%), real imports of semiconductors (-0.4%) and number of housing units approved (-0.1%).

“Despite the softening in LI for the reference month, the growth rate of smoothed LI is consistently above trend and moving upwards,” he said in a statement yesterday.

The Coincident Index (CI), which measures the current economic performance, anticipated a better year-on-year growth to register -2.3% in August 2020 from -2.4% a month prior.

On a monthly basis, the CI rose to 0.5% supported by the increase in volume index of retail trade (0.5%), and real salaries and wages in the manufacturing sector (0.1%).

“In terms of labour force statistics, the number of employed persons improved 0.5% to 15.2 million persons contributed mainly in the services sectors,” he added.