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HIGHLIGHTS-Malaysia unveils expansionary 2021 budget amid COVID-19, political uncertainty

(Adds details)

KUALA LUMPUR, Nov 6 (Reuters) - Malaysia’s government announced an expansionary budget on Friday aimed at spurring economic activity as the country grapples with the COVID-19 pandemic, setting aside concerns of a growing fiscal deficit for the time being.

Here are some highlights from the planned budget, including data from the fiscal and economic outlook reports released by the government ahead of the budget speech:

2021 BUDGET

* Expenditure to rise to 322.5 billion ringgit ($77.94 billion) in 2021 from 314.7 billion ringgit in 2020

* 2021 expenditure allocation is the biggest in Malaysia’s history, says Finance Minister Tengku Zafrul Abdul Aziz

* 2021 revenue to total 236.9 billion ringgit vs 227.3 billion ringgit in 2020

* Operating expenditure seen at 236.5 billion ringgit

* Development expenditure seen at 69 billion ringgit

* Dividend from state oil firm Petronas at 18 billion ringgit, down from this year’s 34 billion ringgit

FISCAL TARGETS

* Fiscal deficit to fall to 5.4% in 2021 from 6% in 2020 - the highest since 2009 global financial crisis

* Current account surplus seen falling to 20.3 billion in 2021 from this year’s 48.5 billion ringgit due to an expansion of domestic industrial and investment activities * Fiscal deficit forecast to average 4.5% between 2021 and 2023, assuming economy grows at 4.5%-5.5% over the period and crude oil prices at $45-$55 per barrel

ECONOMY

* Economy seen growing 6.5%-7.5% in 2021, after shrinking 4.5% this year

* Gross exports to grow 2.7% after falling 5.2% in 2020

* Inflation expected to normalise at 2.5% in 2021

* Unemployment rate to drop to 3.5% in 2021 from 4.2% this year

* Domestic demand seen rebounding 6.9% in 2021, after an expected fall of 3% this year due to lower private and public sector spending

* 1 billion ringgit for investment incentive packages to attract technology and high value-added investments

* Offer income tax incentives ranging from 0 to 10% for 10 years to encourage pharmaceutical product manufacturers to invest in Malaysia

* Introduce Consumer Credit Act to encourage structured credit lending activities and increase consumer protection

* Freeze issuance of new cigarette import licenses and tighten renewal of licenses starting Jan. 1

* 95 million ringgit for microcredit financing for women entrepreneurs

* 2 billion ringgit for hiring incentive, including to encourage companies to replace foreign workers with locals

DEVELOPMENT

* 2.7 billion ringgit for improving rural infrastructure

* Total of 33 billion ringgit set aside for defense and internal security

* 15 billion ringgit for transport infrastructure projects

* Government still keen on proceeding with high speed rail with Singapore, but contingent on further negotiations

COVID-19

* COVID-19 fund allocation seen at 17 billion ringgit vs this year’s 38 billion ringgit

* Propose to raise ceiling of COVID-19 fund by 20 billion ringgit to 65 billion ringgit

* COVID-19 vaccine supply expected to cost more than 3 billion ringgit

* Expand tax relief scope for vaccination expenses, including COVID-19

* One-off 500 ringgit aid to benefit 100,000 medical staff

HANDOUTS & SUBSIDIES

* 6.5 billion ringgit for cash aid programme in 2021

* 400 million ringgit for Felda settlers to reduce loan interests, prepare development programmes

* 28 billion ringgit for subsidies, aid and incentives for 2021

* 1.5 billion ringgit to extend wage subsidy programmes for another three months

PALM OIL

* 20 million ringgit for sustainable palm oil certification programmes

* 30 million ringgit in matching grants for industry’s investment in mechanization and automation

CLIMATE CHANGE

* Government to issue first sustainability bond in Malaysia for environmental and social purposes in 2021

* The budget is aligned with the United Nations Sustainable Development Goals for the first time, says Finance Minister Tengku Zafrul Abdul Aziz

INCOME TAX

* Income tax reduction by 1 percentage point for residents with chargeable income band of 50,001 to 70,000 ringgit

$1 = 4.1380 ringgit Reporting by Joseph Sipalan and A. Ananthalakshmi and Mei Mei Chu; Editing by Ana Nicolaci da Costa, Kim Coghill and Emelia Sithole-Matarise

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