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Malaysia in transition

Malaysia's Muhyiddin pushes largest budget ever to fight COVID

Growth forecast to rebound to 7.5% in 2021; Anwar voices skepticism

Malaysia's Prime Minister Muhyiddin Yassin, left, and Finance Minister Zafrul Aziz pose before submitting the 2021 budget to parliament on Nov. 6.   © Malaysia Information Department/Zarith Zulkifli via Reuters

KUALA LUMPUR -- The Malaysian government led by embattled Prime Minister Muhyiddin Yassin has proposed the largest spending plan in the country's history for 2021, hoping to pave the road back from the COVID-19 pandemic.

Finance Minister Zafrul Aziz submitted the 322.5 billion ringgit ($78.04 billion) budget to parliament on Friday -- an expansionary package that far exceeds estimated government revenue of 236.9 billion ringgit. This follows weeks of political wrangling that has threatened to bring down Muhyiddin's government, with opposition leader Anwar Ibrahim still claiming to have the support of a majority of lawmakers.

The vote on the budget later this month will be a critical test, as a rejection would be equivalent to a no-confidence vote under Malaysian law.

Steps to improve public health and drive a post-pandemic economic recovery top the list of budget priorities.

The government has allocated over 3 billion ringgit to purchase COVID-19 vaccines for mass distribution among Malaysians, Zafrul said in his presentation. "The war is not over until and unless an affordable and accessible vaccine is available," he said, adding that the government is committed to the COVID-19 Vaccine Global Access or COVAX program.

The administration is drawing on support from the private sector to wage its coronavirus battle. Global glove industry leaders Top Glove, Hartalega, Supermax and Kossan Rubber have committed to contribute 400 million ringgit to the government for this purpose. Zafrul said the money would go toward inoculations as well as health equipment.

Zafrul said the government is seeking legislators' approval to raise the ceiling of a dedicated COVID-19 fund to 60 billion ringgit from the permitted 45 billion ringgit, taking into account the recent resurgence of the virus and likely spending requirements stretching to 2022. The latest wave of infections has sent new cases into the low quadruple digits on some days.

Zafrul said 1 billion ringgit of next year's budget would be specifically for fighting this wave -- almost half of it for purchasing reagent and test kits.

Given the ongoing heavy spending, the fiscal deficit is expected to climb to 6% of gross domestic profit by the end of this year, before receding only slightly to 5.4% next year -- versus a pre-pandemic estimate of 3.2%.

GDP growth is forecast to rebound to as much as 7.5% in 2021, from a likely 4.5% contraction this year.

To help get the economy going again, the government proposes cash handouts to some 8.1 million individuals, using an allocation of 6.5 billion ringgit. On top of this, personal income taxes for the middle-income segment would be reduced by 1 percentage point, while compulsory retirement contributions would be cut to 9% from 11% for a period of 12 months -- equivalent to potential government cash flow of 9.3 billion ringgit.

Despite the current headwinds, the government intends to press ahead with infrastructure development, the minister said. Some 15 billion ringgit would be set aside for various projects nationwide.

Zafrul added that Muhyiddin's administration is keen to resume discussions with the Singaporean government on a proposed high-speed rail project connecting the neighbors. "The government will also continue the high-speed rail project, as this project is expected to generate a positive multiplier effect on the country's economy," he said.

The endeavor was supposed to kick off in 2018, but was shelved by then Prime Minister Mahathir Mohamad over high costs and concerns that it was unnecessary.

Amid the political turmoil that has dogged this government, Malaysia's king late last month urged lawmakers to cooperate on the budget and pass it for the country's well-being. It remains unclear, however, if the opposition will play ball.

In an immediate response, Anwar said that although the budget is seen as a wholesome plan, some projections in the presentation do not match the reality on the ground.

"Some expenses and revenues are seen to have been manipulated just to show convincing fiscal deficit numbers," he argued, adding that the budget also failed to offer specifics on how the economy would recover from the health crisis.

Anwar is to open the debate on the budget on Monday.

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