Malaysia remains focused to reduce its fiscal deficit to below 4 per cent of the gross domestic product (GDP) over the next three to four years, Finance Minister Tengku Zafrul Aziz said.
His comments come at a time when the budget deficit this year is expected to rise given several measures taken to boost the economy to address the impact of the COVID-19 pandemic.
The budget deficit is likely to rise to between 5.8% and 6% this year, largely due to the RM45 billion ($10.53 billion) fiscal injection by the government through several measures to boost the economy, Tengku Zafrul Aziz said.
“Most of these measures are either one-off or temporary, which will not have a permanent impact on government finances in the medium term,” he said in his keynote address at Invest Malaysia 2020.
“Moving forward, I can assure you that the government remains focused on preserving fiscal discipline to maintain the systemic strength and integrity of the economy. Our commitment is to reduce the fiscal deficit to below 4% of GDP over the next 3 to 4 years.”
Neighbouring countries in the region are also extending stimulus packages to support and boost the economy as partial lockdowns and stay home orders dampen trade activities. Indonesia said in May that it expected its budget deficit to swell to 6.27 per cent due to virus-related stimulus, Reuters reported, while Thailand said in April its latest borrowing plans would increase its public debt to 51.84 per cent of GDP in the current fiscal year and 57.96 per cent in the next one.
Meanwhile, Zafrul said the growth for 2020 has been estimated to be within the range of -3.8% to 0.5% by various agencies like the Bank Negara Malaysia (-2.0 to 0.50%), IMF (-3.8%) and World Bank (-3.1%), as more than 150 out of 195 countries in the world are expected to post negative growth in 2020.
But he said what is most important is to ensure that a health crisis does not turn into an economic crisis, adding that this is why Malaysia has rolled-out the so-called “PRIHATIN” and “PENJANA” stimulus packages to boost the economy to address the impact brought by COVID-19 pandemic and the lockdown to contain the highly-infectious virus.
“Based on our swift action, a few international agencies have forecast Malaysia’s GDP growth in 2021 to be in the range of 6.3% to 7.5%, subject to our continued success in managing COVID-19, as well as in steering and nurturing the economy towards recovery and growth. As Malaysia is an open economy, whether our growth will be a U-shaped or V-shaped recovery will also depend on external factors such as the recovery of our major trading partners as well as the restoration of global supply chains,” Zafrul, who is former CIMB Group CEO, added.
Malaysia’s Budget 2021, which will be tabled in November, is expected to revolve around broad themes such as steering the economy, sustainable living and enhancing public service delivery.