KUALA LUMPUR – Malaysia’s fiscal deficit for 2021 should hit a level similar to that seen during the global financial crisis more than a decade ago, according to the government’s first-ever pre-budget statement.
Released on Tuesday (Aug 31), the country’s Independence Day, the pre-budget statement showed the fiscal deficit reaching between 6.5 per cent and 7 per cent for 2021, higher than the 5.4 per cent initially estimated. The deficit reached 6.7 per cent during the 2008-2009 global financial crisis.
Malaysia’s economy has been battered since a budget projection was first made late last year, with the country beset by surging Covid-19 infections and repeated lockdowns for much of the year. The health and economic crisis ultimately led to a change in government.
The Ministry of Finance (MOF) on Tuesday also said that there was a need to raise the ceiling for debt to the gross domestic product (GDP) ratio, given the country’s economic situation. As at June, the ratio stood at 56.8 per cent, with the ceiling set at 60 per cent.
“There is a need to increase the statutory debt limit to provide additional fiscal space in strengthening the domestic economy and ensuring a sustainable recovery,” the ministry said in its statement.
Malaysia’s 2022 budget is expected to be tabled some time in October by Finance Minister Tengku Zafrul Aziz, and the pre-budget statement stressed that it will be formulated on the basis of expectations that the economy will recover from the Covid-19 crisis next year.
“Budget 2022 will focus primarily on continuing to protect and restore the lives and livelihoods of the people and businesses, rebuild national resilience and catalyse post-pandemic reforms,” said MOF.
Prime Minister Ismail Sabri Yaakob, who was appointed less than a fortnight ago, has said that he will focus on economic recovery while managing the Covid-19 crisis.
Malaysia’s GDP growth shrank by 5.6 per cent in 2020, the worst contraction since the 1998 Asian financial crisis. Growth estimates had been revised downwards again since the onset of a third Covid-19 wave in September last year. The country had managed the second wave of the virus well, reopening much of the economy after a two-month lockdown in mid-2020.
Despite a lockdown that has lasted close to three months, though, the number of daily cases has remained stubbornly high, with the country reporting around 20,000 cases daily as well as hundreds of deaths.
Malaysia has one of the highest Covid-19 vaccination rates in the world, with 83.8 per cent of adults having received at least one dose of a vaccine as at Tuesday, and 63.6 per cent of them fully inoculated.