Budget 2020: Fiscal deficit projected at 3.2pc of GDP next year

Finance Minister Lim Guan Eng holds up the briefcase with his Budget 2020 speech at the Finance Ministry in Putrajaya October 11, 2019. — Bernama pic
Finance Minister Lim Guan Eng holds up the briefcase with his Budget 2020 speech at the Finance Ministry in Putrajaya October 11, 2019. — Bernama pic

KUALA LUMPUR, Oct 11 — The Finance Ministry said today Malaysia’s fiscal deficit is projected at 3.2 per cent of Gross Domestic Product (GDP) for 2020, slightly higher than the three per cent originally announced in Budget 2019.

According to the MoF’s Fiscal Outlook and Federal Government Revenue Estimates 2020 report, the ministry said despite the slight increase, the deficit target remained on a consolidation path.

“This is due to the government’s strategic decision to strengthen domestic economic activities as pre-emptive measures to provide immediate support and sustain the growth momentum in light of slower global growth forecast,” it said.

Following that, the ministry said the federal government will allocate an additional injection of 0.2 per cent of GDP through development expenditures (DE) to revitalise public investment via capital formation in strengthening long-term potential of the economy.

It added that the allocation will be mainly channelled to accelerate the implementation of transportation and connectivity projects such as the Pan Borneo Highway, Mass Rapid Transit 2 and the Gemas-Johor Baru Electrified Double Track Project.

The allocation would also include the implementation of small-scale developmental projects such as upgrading of dilapidated schools, clinics, water treatment plants and sewage facilities as well as suburban broadband infrastructure.

“These projects are expected to generate high-multiplier impact on the economy towards achieving inclusive development.

“Given the pre-emptive measures, the overall deficit in 2020 is expected to be lower at 3.2 per cent of GDP with fiscal consolidation remaining on its trajectory and the debt position at a manageable level,” it added.

Total expenditure in 2020 is forecast at RM297 billion or 18.4 per cent of GDP, of which RM241 billion constituted operating expenditure (OE) and RM56 billion constituted development expenditure (DE).

It said the 2020 OE allocation was an increase of 7 per cent from RM225.3 billion allocated in 2019 after excluding one-off tax refund allocation of RM37 billion.

“Emoluments remain the largest component of OE and estimated to grow to RM82.6 billion, predominantly due to annual salary increment,” it said.

Meanwhile on the 2020 DE allocation, the ministry said it will be channelled towards promoting economic development, bridging urban-rural infrastructure gap and enhancing the living standards of the people.

“RM53.5 billion is in the form of direct allocation while the balance of RM2.5 billion is for loans to state governments and government-linked entities,” it said, adding that the economic sector remained the largest recipient at 55.4 per cent of DE, followed by social at 26.9 per cent and security at 11.7 per cent.

On the 2019 performance, the report said the fiscal deficit was expected to remain at 3.4 per cent of GDP as originally targeted in Budget 2019.

While the fiscal deficit is projected to be reduced to 3.2 per cent of the GDP in 2020, the ministry said it will decline further to an average of 2.8 per cent in the medium term.

Nevertheless, the report said the government would continue to strengthen its finances despite the current external headwinds, particularly trade tensions and volatility in commodity prices.

“The ongoing fiscal reform initiatives will further enhance the accountability and transparency of the government as well as contribute to fiscal sustainability,” it said.

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