Malaysia’s economy projected to grow up to 7.5% next year, says government as it tables expansionary 2021 budget

(CNA) – Malaysia’s economy is projected to rebound with a growth between 6.5 per cent and 7.5 per cent next year, said the government on Friday (Nov 6) as it unveiled an expansionary budget geared towards a recovery from COVID-19.

The government led by Prime Minister Muhyiddin Yassin allocated RM322.54 billion (US$77.9 billion) or 20.6 per cent of the gross domestic product (GDP) for total expenditure in 2021, according to the fiscal outlook report released by the Ministry of Finance in conjunction with the tabling of the budget.

Of the total, RM236.5 billion is for operating expenditure and RM69 billion is for development expenditure, while RM17 billion is for the COVID-19 Fund.

The sum is about 2.5 per cent higher than this year’s RM314.7 billion, which has been revised upwards from the initial budget estimate of RM297 billion.

The government also expects to run on a fiscal deficit of 5.4 per cent of gross domestic project (GDP), lower than this year’s 6 per cent, according to an accompanying economic outlook report.

This is the first budget tabled by Mr Muhyiddin’s administration, which holds a slim majority in the House of Representatives.

There have been fears earlier that Members of Parliament (MP) would block the passage of the budget and turn it into a no-confidence vote against Mr Muhyiddin. But the crisis appears to have been averted after the king urged MPs from both sides of the political divide to support the Bill.

Inputs have been sought from the opposition lawmakers on the formulation of this budget, the first time in the country’s history.

Like every other country, Southeast Asia’s third-largest economy has been hit hard by the COVID-19 pandemic, with the economy projected to contract 4.5 per cent this year.

To mitigate the impact of the pandemic, a total of RM45 billion of fiscal injection has been allocated under a COVID-19 Fund, a temporary fund which spans over three years until 2022.

Of the total, RM38 billion will be disbursed this year, while the balance of RM17 billion is expected to be spent next year on wage subsidy programmes, small scale infrastructure projects, small- and medium-size enterprise (SME) soft loans and food security, the government said in an accompanying fiscal outlook report.

Various stimulus packages to support the people and revitalise the economy have slowed this year’s economic contraction. The impact of the packages is anticipated to have spill-over effects and provide an additional boost to the economy next year, the government said.

“With the anticipated improvement in global growth and international trade, the Malaysian economy is projected to rebound between 6.5 per cent and 7 per cent in 2021.

“Growth will continue to be supported by strong economic fundamentals and well-diversified economy,” the government said, adding that the favourable outlook, however, hinges on the successful containment of the pandemic and sustained recovery in external demand.

Government revenue, meanwhile, is forecast at RM236.9 billion next year, a 4.2 per cent rise from this year’s revised estimate, on the back of improving economic growth and business prospects.

The higher revenue is largely attributed to better tax revenue collection, while petroleum-related revenue is forecast to be lower at RM37.8 billion in 2021.


Policymakers said domestic demand has shown signs of recovery in the second half of 2020, particularly in private consumption.

Inflation is expected to normalise to 2.5 per cent next year, following the contraction of the consumer price index by 1 per cent in the first eight months of 2020 due to lower pump prices and discount given on electricity bills as part of the stimulus measures.

Malaysia, though relying heavily on commodities and petroleum for its foreign exchange, has a well diversified economy. It also has strong services and manufacturing sectors.

The services sector, which accounts for 58.1 per cent of GDP, is projected to contract by 3.7 per cent before rebounding by 7 per cent in 2021.The government also expects manufacturing, agriculture and mining to turnround next year.

The manufacturing sector is forecast to rebound by 7 per cent in 2021. “Chemical and rubber products are anticipated to continue to record high growth, benefiting from higher demand for rubber gloves and pharmaceutical products,” the economic outlook said.

Agriculture, which contracted by 3.9 per cent in the first half of 2020, is expected to turnaround by 4.7 per cent next year, supported mainly by higher production of palm oil and rubber.

“The oil palm subsector is anticipated to rebound following improvements in global demand, particularly from China and India.

“The rubber subsector is expected to surge as global demand for natural rubber increases in line with the expansion of the automotive industry,” the government said.

Construction is expected to expand by 13.9 per cent next year, after a contraction of 18.7 per cent this year on the account of the acceleration and revival of major infrastructure projects, along with affordable housing projects.

Among the major infrastructure projects include Mass Rapid Transit 2, Light Rail Transit 3, West Coast Expressway and Bayan Lepas Light Rail Transit as well as Pan Borneo and coastal highways in Sarawak.

Gross exports are estimated to expand by 2.7 per cent in 2021, following a projected decline of 5.2 per cent this year.

The current account surplus for 2020 is expected to be RM48.5 billion, due to the widening deficit in the services account. Expansion in domestic industrial and investment activities are expected to lower the surplus to RM20.3 billion, or 1.3 per cent of the gross national income, next year.

“After a dismal economic performance in 2020 due to the COVID-19 pandemic, the Malaysian economy is expected to rebound firmly in 2021, in line with the expectation of a more synchronised global recovery.

“At the same time, domestic demand is projected to record a steady growth, supported by improvements in labour market conditions, low inflation and favourable financing conditions as well as the revival of major infrastructure projects. All sectors in the economy are expected to turnaround, with services and manufacturing sectors continuing to spearhead growth,” the government said.