Saturday, November 27, 2021

Biggest budget ahead, say economists, but needed despite inflation concerns

Economists expect Putrajaya's second pandemic budget to surpass the RM322 billion allocated last year even after the government dished out a series of rescue packages.

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The government is expected to continue its expansionary policy in Budget 2022, to be tabled later today, making it the budget with the largest allocation in history, economists say.

Such a move has triggered criticism that the government would be following a path of excessive spending that would increase inflation.

In July, the consumer price index, which measures the country’s inflation rate, increased by 2.2%, according to official figures.

Critics have also pointed out the series of stimulus packages from the government to help the people and businesses survive the movement control order (MCO) which began in March last year.

To date, the government has implemented eight economic aid and stimulus packages involving a total of some RM530 billion, including Prihatin (RM250 billion), Penjana (RM35 billion), Pemerkasa (RM20 billion) and Pemulih (RM150 billion).

Ahmed Razman Abdul Latiff of Universiti Putra Malaysia acknowledged concerns about inflation, adding that there was also worry over whether the government would be able to implement such a budget.

He predicted that the budget to be tabled by Finance Minister Tengku Zafrul Aziz today, the second since the Covid-19 pandemic ravaged the economic sector forcing Putrajaya to release billions of dollars to soften the impact, could exceed the RM322 billion allocated last year.

But Razman said with the statutory debt rate increased by 60% of the GDP, there would be room to ensure that the upcoming budget, which he said could total RM350 billion this time, would allow government assistance to reach the targeted groups.

He said the increase in the statutory debt rate would enable the government to accommodate RM60 billion more in debt, although this will not necessarily be maximised.

Economist Afzanizam Abdul Rashid said inflation was a valid concern that would affect purchasing power, and that the government would need a more effective strategy to tackle this issue.

“Ensure that the food supply is always enough, and that the supply chain is always monitored so that the activities of middlemen who take advantage in terms of agricultural products can be eradicated,” the Bank Islam chief economist told MalaysiaNow.

However, Razman said the rate of inflation based on the consumer price index does not reflect the current price of goods.

He believes the inflation rate will remain low, and that any risk will still be contained.

He said the focus should be on addressing the global supply chain crisis which occurred due to a surge in demand after the reopening of economic sectors.

Any bottleneck in supply at the international level would likely increase the inflation rate in comparison to the fiscal development policy, he added.

If such a situation continues, he said, the price of goods would increase as the country still relies heavily on imports.

As such, he hoped the budget would focus on campaigns to buy local goods.

Economist Madeline Berma, meanwhile, said an expansionary approach is needed at present to ensure economic recovery and sustainability.

“An expansionary budget would also strengthen economic growth and complement the 12th Malaysia Plan,” she told MalaysiaNow.

Madeline, who expects the budget to focus on infrastructure development and digitalisation, also noted that the government is expected to continue giving Covid-related aid.

“The government will continue to play a strong role in providing a conducive environment for post Covid-19 economic recovery,” she said, adding that government intervention will be needed to save lives and livelihoods even during the endemic period.

“At a time when resources are limited, weak government intervention will widen existing gaps,” she said.

“Government intervention is needed in the form of economic support programmes to counter the adverse impacts of the MCO on income, employment and livelihoods.”

She also suggested that the government provide incentives for the most affected sectors such as tourism, as well as those that have strong multiplier effects like mega infrastructure projects.

Razman meanwhile agreed with the general expectation that Budget 2022, which comes some two months after the change of leadership in August, would be populist, citing the 15th general election which is widely expected some time in the middle of next year.

And with the implementation of Undi 18 which saw the minimum age of voting lowered from 21, the government will have to take into account an entire new group, he added.

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