Malaysia to raise 2021 spending to counter coronavirus impact on economy

Malaysia's government proposed a larger national budget in 2021 on Friday to help the coronavirus-hit economy rebound by up to 7.5% and provide increased handouts for the poor.

The budget is the first by the unelected government of Prime Minister Muhyiddin Yassin, who took power in March after initiating the collapse of the former reformist government.

It is a key test of support for Muhyiddin, who has a slim two-seat majority in Parliament and faces challenges from allies in his coalition and opposition parties.

Finance Minister Zafrul Aziz told Parliament that the expansionary budget has the people's welfare in mind during the pandemic and will raise spending to a record 322.5 billion ringgit ($78.1 billion), up 2.5% from this year.

That includes a sharp rise in development spending to 69 billion ringgit ($1.7 billion) as well as 17 billion ringgit ($4.1 billion) for a COVID-19 fund.

Zafrul said the economy could grow 6.5%- 7.5% in 2021, from a projected 4.5% contraction this year. The fiscal deficit is projected to narrow to 5.4% of gross domestic product, down from a projected 6% this year, We can argue and disagree on secondary issues but we should unite to agree on principle ... let this budget be the canon of our unity for the welfare of the people," Zafrul said as he appealed for support for the proposed spending.

The budget includes cash handouts for poor families and front-line workers in the coronavirus crisis, wage subsidies and funds to create new jobs and train workers. Various incentives and subsidies are also provided for farmers, fishermen and industries to boost productivity and woo investors.

A small income tax cut will benefit 1.4 million taxpayers, and Malaysians can withdraw some savings from the pension fund to tide themselves over during the crisis.

Domestic demand is expected to rebound 6.9% after falling 3% this year. Exports are seen expanding 2.7% after contracting 5.2% in 2020. Unemployment is projected to drop to 3.5% in 2021, with inflation seen at 2.5%.

James Chin, head of Asian studies at Australia's Tasmania University, said the increased spending to boost the economy is much like what the rest of the world is doing.

I would call it a conservative budget. The additional spending is small compared to this year. If you look at countries around the world they are spending more," Chin said. He said he expected spending to be raised over the year.

Lawmakers will debate the budget before voting on it later this month. With the pandemic surging since last month, Muhyiddin is expected to garner sufficient support for its passage. Failure to do so would raise pressure on him to resign or call new elections. Malaysia reported a daily record of 1,755 cases on Friday, bringing its total to 38,189.

Opposition leader Anwar Ibrahim says he has majority support in Parliament but needs the monarch's approval to form a new government, and the biggest party in the ruling coalition is angry at being sidelined in Muhyiddin's government.

Muhyiddin sought last month to thwart attempts to challenge his leadership by seeking to declare a state of emergency, but was rebuffed by the king.