“The government will focus on long-term productivity through the use of new technology to accelerate the transformation towards a high-income economy”

Budget 2021 speech by YB Senator Tengku Dato’ Sri Zafrul Tengku Abdul Aziz, Minister of Finance, Malaysia. Excerpts…

The year 2020 has been a tumultuous period for Malaysia, marked by many challenging circumstances. Never before in modern history has an epidemic wrought such profound changes. The spread of Covid-19 has not only taken people’s lives but stifled economies. There are no guidelines or precedences that can be used as reference because this is an unprecedented crisis.

The crisis has shocked supply and demand, disrupted supply chains, and exerted great pressure on the business ecosystem. We also have to deal with uncertain external headwinds, falling commodity prices and limited fiscal space.

The International Monetary Fund or IMF has projected the global economy to contract by 4.4 per cent this year. Global trade, meanwhile, is set to decline by 10.4 per cent. Described as the worst economic crisis since the 1930s’ Great Depression, the Covid-19 pandemic has upended the economies in over 150 countries.

Taking into consideration the current environment, the country’s economic growth was revised for the year 2020 and is expected to contract by 4.5 per cent. For 2021, our economy is expected to recover and expand at a rate between 6.5 and 7.5 per cent. This is in line with the proactive measures undertaken by the government through the economic stimulus packages, the Budget 2021 initiatives and supported by the recovery of the global economy, which is forecasted to rebound by 5.2 percent.

The effects of the Covid-19 pandemic will continue to be felt this year. Therefore, government revenue collection for the year 2021 is expected to increase to 236.9 billion ringgit. Nevertheless, the government has decided that the 2021 budget is an expansionary budget. Accordingly, the total expenditure for the year 2021 is the largest expenditure in history with a value of 322.5 billion ringgit. The government intends to allocate 236.5 billion ringgit for operating expenses, 69 billion ringgit for development expenditure and 17 billion ringgit under the Covid-19 Fund. Meanwhile, 2 billion ringgit is allocated for the Contingency Reserve Advance Warrant. Taking into account those estimates, the 2021 fiscal deficit is projected at 5.4 per cent of GDP.

In the new norm, virtual services are becoming more common. The development of infrastructure and upgrading of basic telecommunications networks is necessary to meet the needs of a digital lifestyle. Therefore, the government will allocate 500 million ringgit to implement the National Digital Network initiative, JENDELA, to ensure the connectivity of 430 schools throughout Malaysia covering all states. At the same time, the Malaysian Communications and Multimedia Commission will allocate 7.4 billion ringgit for years 2021 and 2022 to build and upgrade broadband services.

Business continuity

The business environment has now evolved. Hence under business continuity the focus of the government will be to accelerate investments, strengthen strategic sectors and improve access to financing.

Driving investments is a key priority. To help local companies face future challenges, the government will act as a facilitator in providing access to investment funds including improving the business environment.To facilitate this, 1 billion ringgit will be provided as a special incentive package for high-value-added technology. Among others, this fund aims to support R&D investment in aerospace as well as electronic clusters such as in Batu Kawan, Penang and Kulim, Kedah industrial parks.

Prioritising automation and digitalisation

The government will focus on long-term productivity through the use of new technology to accelerate the transformation towards a high-income economy. The government through the BPMB has provided the Industrial Digitalization Transformation Scheme valued at 1 billion ringgit, which aims to boost digitalization activities. To that end, the availability of these funds will be extended until December 31, 2023.

Transport infrastructure development

The government is committed to implement transport infrastructure projects to increase the mobility of rakyat. In 2021, 15 billion ringgit will be allocated to fund the Pan Borneo Highway, the Gemas-Johor Bahru Electrified Double-Tracking Project and the Klang Valley Double-Tracking Project Phase One. In addition, several key projects will also be continued such as the Rapid Transit System Link from Johor Bahru to Woodlands, Singapore and MRT3 in the Klang Valley. The government will also continue the high-speed rail project or HSR as this project is expected to generate a positive multiplier effect to the country’s economy. However, it is subject to further discussion with Singapore.

There are also several large new projects worth approximately 3.8 billion ringgit that will be implemented. These include the construction of the Second Phase of the Klang Third Bridge in Selangor, continuing the Central Spine Project with the new alignment from Kelantan to Pahang; upgradation of the bridge across Sungai Marang, Terengganu; upgradation of Federal Road connecting Gerik, Perak to Kulim, Kedah; continuing building and upgrading Phase of the Pulau Indah, Klang Ring road Phase 3, Selangor; construction of the Pan Borneo Highway Sabah from Serusop to Pituru; and construction of the Cameron Highlands Bypass road, Pahang, with emphasis on preserving the environment.

Balanced regional development

For the five regional corridors of economic development, development projects will be continued with an allocation of 780 million ringgit for year 2021 including: Rapid Transit Bus Transport System at 3 High Capacity Routes and construction of busway at IRDA in Johor; construction of the Palekbang Bridge to Kota Bahru, Kelantan, under ECER; construction of infrastructure and related components of the Special Development Zone project in Yan and Baling, Kedah, under NCER; infrastructure project in the Samalaju Industrial Area, Sarawak, under SCORE; and continuation of the Sapangar Bay Container Port Expansion Project, Sabah, under SDC.

Sustainable finance

Towards creating a sustainable financial hub, and positioning Malaysia as a regional hub for a sustainable lifestyle, the Government will continue to formulate its long-term efforts for this purpose. Last August, the government has issued its first digital sukuk online, the Sukuk Prihatin where the subscription has exceeded the target at 666 million ringgit. The government will now issue its first sustainability bond in Malaysia for environmental and social initiatives in 2021. In addition, to further encourage the issuance of sustainable and responsible investment (SRI) products and bonds that achieve green, social and sustainable standards in Malaysia, the existing income tax exemption for SRI green sukuk grant is extended to all types of sukuk and bonds and this exemption is extended until 2025.