One sticky point in Unity Budget 2021

According to Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, the current targeted loan moratorium and assistance is preferred over a blanket approach suggested by PH.

PETALING JAYA: The hint by DAP secretary-general Lim Guan Eng that Pakatan Harapan (PH) may vote against Budget 2021 if its proposed six measures are rejected by the government has raised concerns ahead of the tabling of the budget on Nov 6.

Economists who spoke to StarBiz generally agreed on PH’s all but one proposed measure, namely, the extension of the loan moratorium until March 31,2021, citing infeasibility.

According to Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid, the current targeted loan moratorium and assistance is preferred over a blanket approach suggested by PH.

Mohd Afzanizam pointed out that not everyone required an extended loan repayment holiday, especially those who are not affected financially due to the Covid-19-induced crisis.

“Looking at the numbers from Bank Negara’s Financial Stability Review in the first half of 2020, the share of households who opted for the previous blanket moratorium reduced from 86.9% in April to 85.5% in May and 84.4% in June.

“For those who are not affected, a moratorium could delay the maturity of their debts. In other words, it will take longer for them to settle their outstanding borrowings.

“So, the solution should be targeted and tailor-made to the predicament faced by the individuals, ” he told StarBiz.

Mohd Afzanizam added that Bank Islam has extended its targeted financial assistance to qualified borrowers until June 2021.

PH has proposed six measures for the upcoming budget, dubbed “Unity Budget 2021.”

The measures are namely to increase the Health Ministry’s resources for Covid-19 and non-communicable diseases, increase the monthly welfare aid to RM1,000, the extension of the loan moratorium, the extension of the wage subsidy programme, increase educational spending as well as allocate development expenditure for the National Fiberisation Connectivity Plan and upgrade the water infrastructure in Selangor, Kelantan and Pahang.

An economist described the six proposed measures by PH as “nothing new” and disagreed with the call to extend the loan moratorium. “Banks’ profitability has been affected by the previous automatic loan moratorium and another round of such a measure will only be negative for the banks.

“This is not a wise call at a time when the overnight policy rate is already slashed sharply this year, which has caused margin compression, ” he said.

The upcoming Budget 2021 will be closely watched by many quarters in anticipation for higher government expenditure to further boost consumption and business sentiment.

Maybank IB Research believes the federal government’s fiscal deficit next year will likely remain large as Budget 2021 is slated to allocate more cash for expenditure, despite a projected revenue shortfall.

With tax hikes or new taxes unlikely to take place in 2021 amid the fragile economic environment, Maybank IB Research forecasts government expenditure to exceed its revenue by RM90bil, representing a fiscal deficit of 6% of the gross domestic product (GDP).

In comparison, the research house expects a RM95bil deficit in 2020 or 6.7% of the GDP.

“In terms of allocation and incentives, we expect Budget 2021 to increase spending on social welfare and safety nets by continuing and enhancing targeted supports to the vulnerable population as well as on Covid-19-related healthcare expenses, including vaccine purchases.

“As for infrastructure projects, 2021 should see faster progress in existing major infrastructure projects plus the scheduled rollout – and potential confirmation – of additional major infrastructure projects, ” the research house said.

Meanwhile, Bank Islam’s Mohd Afzanizam forecasts a fiscal deficit of 6.5% in 2021, as compared with 7% next year. He expects the healthcare sector to receive greater allocation under Budget 2021 to prepare against the pandemic.

Another key area of focus would be employment, he said. “As such, programmes like wage subsidy programmes, Geran Khas Prihatin, and cash transfers like Bantuan Prihation Nasional will continue. I don’t think there should be new taxes, ” he added.

Mohd Afzanizam also urged the government to accelerate large infrastructure projects, considering that the country’s construction output declined by a massive 44.5% during the second quarter of 2020. “As such, it is high time to ensure that projects will be up and running as this will have a positive spillover effect on other industries such as manufacturing and services, ” he said.

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