• PRESS RELEASES

RAM Ratings: Budget 2021 will lend strength to an uneven and fragile economic recovery

Published on 06 Nov 2020.

Share Tweet Email

The supportive stance of Budget 2021 is appropriate and broadly in line with RAM’s expectations, given the fragility of the near-term economic outlook. RAM views that a steady economic recovery, supported by targeted short-term fiscal measures and effective public health measures will underscore sustainable long-term fiscal prospects. 

The Government’s 6.5%-7.5% growth projection for 2021 (2020 estimate: 4.5% contraction) is in line with our current growth projections. The economic recovery will be driven by private consumption stemming from a gradual recovery of  the labour market and  various stimulus measures to support income across all segments.  These measures include direct transfers (RM6.5bil), income tax adjustments, optional withdrawals from EPF Account 1 (RM4 bil) and a lower rate of EPF contributions by employees (RM9.3bil). We also anticipate a moderate recovery in private investment and exports amid the slew of investment initiatives to boost the business landscape.  

In addition, we envisage a significant boost in public investment next year, driven by the sizeable RM69 bil allocation for development expenditure (2020: RM50 bil). The bulk of this will be channelled to the transport, health and education sectors, which are critical to boost economic recovery. Notably, the enlarged budget for public health should lead to better outcomes in the fight against the pandemic. 

On the fiscal front, the projected budget deficit of 5.4% of GDP in 2021 is within our expectations and tolerance levels, given the pressing need to fuel economic recovery. Assuming no further supplementary budget next year, government debt is envisaged to stay hefty at circa 61.4% of GDP in 2021. Given petroleum-related earnings account for 16.0% of Malaysia’ total revenue, fiscal metrics remain highly sensitive to oil price volatility as well as the pace of global economic recovery and developments on the coronavirus front. 

 

Analytical contact
Jason Fong
(603) 3385 2616
jason@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



Loading...