Malaysia unveils an optimistic 2020 Budget – UOB

Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group assessed the recently published 2020 Budget by the Malaysian government.

Key Quotes

“Ministry of Finance (MOF) expects an uptick in real GDP growth to 4.8% in 2020 (2019 estimate: 4.7%); above our expectation of 4.4% in 2020 and 4.6% in 2019. This would be driven by domestic demand amid resilient private sector spending and acceleration of projects towards the end of the 11th Malaysia Plan (11MP, 2016 - 2020)”.

“Fiscal deficit is targeted to narrow to MYR 51.7bn or 3.2% of GDP in 2020 (from est. 3.4% in 2019). Though higher than the initial 3% target that was announced in last year’s budget, it remains on a consolidation path. This is due to the government’s decision to allocate MYR 3.2bn or 0.2% of GDP as pre-emptive measures to support the economy amid stronger external headwinds. The government targets to lower the fiscal deficit to 2.8% of GDP in the medium term”.

“Key measures to support the robust outlook include cash assistance for low-income group, higher minimum wages, tax breaks for the electronics sector and intellectual property, incentives for automation and industry transformation, improving access to financing, green technology, and special incentives to attract Fortune 500 companies. There were notable giveaways for infrastructure, transportation, tourism, industry, and green technology”.

“With 2020 being the final year of the 11MP, this budget is a crucial one to ensure that gains made in previous years are sustained amid significant external headwinds. On that note, we are positive that the government announced a fair budget that prioritises the economy without much slippage in the fiscal deficit. The budget delivers a balance of measures to revitalize growth and investments, promote equality, create jobs, raise productivity, and improve human capital. What matters most is timely and effective execution as well as certainty and clarity in policy actions”.