Policy makers may take a realistic, attentive and responsible approach in the 2020 Budget due to limited fiscal space, a challenging external environment and an unsettled new administration. NST pix by Osman Adnan

KUALA LUMPUR: Policy makers may take a realistic, attentive and responsible approach in the 2020 Budget due to limited fiscal space, a challenging external environment and an unsettled new administration.

Kenanga Research said this was despite the government’s plan to continue implementing fiscal discipline via Medium-Term Fiscal Framework from 2019 to 2021.

The firm said the budget would likely not compromise on fiscal consolidation, implying a baseline fiscal deficit projection of 3.3 per cent of the gross domestic product (GDP) next year versus a deficit forecast of 3.5 per cent in 2019.

Due to be tabled in Parliament on October 11, the second edition of national budget under the Pakatan Harapan government will be an opportune platform for the government to reaffirm its policy stance.

Kenanga Research said the budget would also provide a clearer direction of long-term development plan as well as a fresh attempt to restore public confidence towards the administration.

“The government is also due to unveil a new comprehensive strategy to achieve shared prosperity by 2030, which will incorporate both the 12th and 13th Malaysia Plans (MPs).

“We foresee some of the measures and policies announced in the budget to incorporate the gist of the 12MP, which is premised along the vision of Shared Prosperity 2030,” it said today.

The vision encapsulates three development dimensions including economic empowerment, environmental sustainability and social re-engineering.

“These hover around the idea of tapping into new growth enablers in the era of Fourth Industrial Revolution, while ensuring all segments of the citizens are able to participate and prosper from the economic activities, in addition to simultaneously improve and focus on sustainability,” Kenanga Research added.

It said the 12MP would prioritise regional development particularly in six seemingly left-behind states namely Sabah, Sarawak, Perlis, Kedah, Kelantan and Terengganu.

While the external factors would weigh on Malaysia’s growth prospect, Kenanga Research said the budget would partially be mitigated by domestic activities, in particular the revived mega infrastructure projects. This would provide the much needed multiplier factor to boost domestic demand.

“Assuming that the government has factored both external and domestic concerns, we reckon the official GDP forecast for 2020 would be biased on the low side between 4.0 per cent and 4.5 per cent compared to this year’s forecast of 4.3 per cent to 4.8 per cent, which would likely be adjusted.”

Kenanga Research said the budget would track the pervasiveness of inequality in an economy, which could be viewed in several angles among others, disparities across income groups and across states.

“Malaysia has experienced a rising disparity across income groups, with widening gaps between median monthly household income of T20 (2016: RM10,148; 2012: RM7,944), M40 (2016: RM3,275; 2012: RM2,520) and Malaysia’s average (2016: R2,228; 2012: RM1,774) relative to the B40.”

The disparities could give rise to variation in educational attainment, employability and business opportunity, it added.