Covid-19 measures, 12MP to dominate Budget 2021
KUALA LUMPUR: Affin Hwang Investment Bank Bhd (AffinHwang Capital) believe that measures to address economic slowdowns brought by the Covid-19 pandemic as well as the 12th Malaysia Plan (12MP) will bethe key focus on the upcoming BUdget 2021 announcement on November 6.
In a special report, it said short-term impact from recent Conditional Movement Control Order (CMCO) likely to be addressed.
“For the immediate term, the strategies of the budget proposals will be to stimulate domestic demand, following concerns of the challenging Covid-19 on Malaysia’s economy,” it highlighted.
This follows the recent announcement of the enforcement of a Conditional MCO (CMCO) for Selangor, KL and Sabah, from October 14 to 27, 2020, where there are some concerns of a possible deterioration in business activity and slight uptrend in unemployment, which may pose some downside risk for the economy.
“Selangor, KL and Sabah account for 41.4 per cent of the country’s total employment and about 50 per cent of Malaysia’s Gross Domestic Product (GDP).
“Based on monthly GDP estimates by the Department of Statistics earlier in the second quarter of 2020 (2Q20), the country’s real GDP growth contracted by 28.6 per cent year on year (y-o-y) in April during the nationwide MCO period, followed by minus 19.5 per cent in May during the CMCO, and posted a smaller decline of 3.2 per cent in June during the Recovery MCO (RMCO).
“However, we believe the negative impact on domestic demand this time around may not be as sharp as in 2Q20, as this will not be a state-wide CMCO; most essential services and business activities are allowed to operate in these three states, with restriction mainly on nonessential services.
“We believe the current CMCO restrictions in these states will not impact negatively on business sentiment and investment intentions.”
AffinHwang Capital went on to believe that the tone of the budget proposals will be to counter the negative effects of Covid-19 on the country’s economy as well as to introduce new stimulus measures to assist certain sectors affected, especially in the tourism-related and services industries.
Being the first year of the Twelfth Malaysia Plan (12MP), covering the years 2021 through 2025, the Budget 2021 proposals and measures will also likely revolve around medium to long-term strategies, covering economic empowerment, environmental sustainability and social re-engineering, consistent with the directions and strategies of the 10-year blueprint of Shared Prosperity Vision 2030.
Through the SPV 2030, Malaysia aims to achieve sustainable growth along with fair and equitable distribution across income groups, ethnicities, regions and supply chains.
Medium to long-term proposals to focus on strategies of Twelfth Malaysia Plan. For the medium to long term, we expect the Budget 2021 proposals to contain specific strategies that will focus more on economic reform measures focusing on labour market reforms, quality investments and the digital economy.
These strategies are anticipated to enhance Malaysia’s economic resilience while placing the country on a more competitive footing going forward. In December, the government will likely announce a medium to long-term economic plan, which will be a result of engagements with various sectors.
The plan will largely focus on structural issues and challenges, where emphasis will be on research and development (R&D) to make investing and doing business easier in Malaysia.
Furthermore, it was also highlighted that in order to help move up the value chain, Malaysia will need to make strategic investments while promoting investments in areas which have advantages in terms of resources or geography.