BNM keeps OPR at 1.75 per cent to make way for expansionary Budget 2021
Malaysians will be anxiously awaiting the Finance Minister’s tabling of his maiden budget later today at 4pm, in what could very well be the most crucial budget in the country’s history amid a pandemic that has brought major disruptions to lives and livelihoods in Malaysia and elsewhere. Reviving the economy, creating jobs and safeguarding the livelihoods of the people are expected to be key areas of focus for Budget 2021.
BNM keeps OPR at 1.75 per cent to make way for expansionary Budget 2021
According to Maybank Investment Bank Bhd Research (Maybank IB Research), Bank Negara Malaysia’s (BNM) decision to maintain the Overnight Policy Rate (OPR) at 1.75 per cent is to make way for Budget 2021. The budget, which is scheduled to be tabled in Parliament today, is expected to remain expansionary, with a deficit forecast of RM90 billion, or 6.0 per cent, of gross domestic product (GDP) versus the estimated RM95 billion, or 6.7 per cent, of GDP in 2020. BNM kept the OPR at 1.75 per cent for the second consecutive Monetary Policy Committee (MPC) meeting to preserve monetary policy space. BNM’s decision was also consistent with indications that the economic recession is shallowing after the slump of GDP in April or the second quarter of 2020 (-17.1 per cent), which is supportive of the current official real GDP forecast of growth of between +5.5 per cent to +8.0 per cent in 2021, after the -3.5 per cent to -5.5 per cent performance in 2020. Aside from the pause in the OPR, it also noted that the use of other monetary policy instruments to boost liquidity and provide reliefs to the economy have tapered, hence, reducing the need for monetary policy intervention via an OPR cut and/or liquidity measures. That included the slowing BNM’s purchases of the Malaysian Government Securities, shift to targeted loan moratorium extension and flexible loan repayments after the end of the automatic/blanket loan moratorium period from April to September, 2020. For now it expects the OPR to stay at 1.75 per cent until end-2021, but continues to view this is a dovish pause amid the downside risks economic outlook highlighted in the latest Monetary Policy Statement.
A-G’s Report: Federal govt records RM264.415 bln revenue in 2019
According to the Auditor-General’s (AG) 2019 Report on the Federal government’s financial statement, the Federal government recorded a revenue of RM264.415 billion in 2019, a 13.5 per cent (RM31.532 billion) increase compared to 2018. Meanwhile, operating expenditure approved last year amounted to RM260.547 billion while actual expenditure amounted to RM263.343 billion. Expenses due to national debt (interest, dividends, and other charges) amounted to RM32.933 billion or 12.5 per cent of the operating expenses. This expenditure increased by a total of RM2.386 billion or 7.8 percent compared to 2018 which amounted to RM83.050 billion because it was not budgeted for under the management allocation but was paid directly from the Consolidated Loan Account. Additionally, on the ministries’ and federal departments’ development expenditure, RM54.173 billion or 104.6 per cent was spent from the allocation approved in 2019. The Federal government had a RM51.370 billion deficit with a deficit to Gross Domestic Product (GDP) ratio of 3.4 per cent. The deficit was offset by new loans amounting to RM138.559 billion and of the total loans, RM83.05 billion or 59.9 per cent was used to repay matured debts. The Federal debt stood at RM792.998 billion, a seven per cent increase compared to RM741.094 billion in 2018, the debt-GDP ratio is RM52.5 per cent. Of the total debt amount, 96.4 per cent was domestic debt with the balance of 3.6 per cent being off-shore loans, the total Federal government debt and liabilities in 2019 is RM1.080 trillion. Meanwhile, audit on state government’s financial statements for the year ending Dec 2019 found that all 13 state governments’ financial statements were given opinions without reprimand. The audit analysis showed that all financial statements had presented a true and fair view of the financial position of the state government and the accounting records were complete and updated. The National Audit Department had conducted 28 compliance audits at the state government level involving one ministry in Sarawak, 23 departments and 14 state agencies in 2019/2020. Among the main findings were occurrence of irregular payments, revenues not collected in an orderly manner and weaknesses in government procurement. The A-G’s report on the federal government’s financial statement for 2019 will be uploaded on the National Audit Department’s website after its presentation in the Dewan Rakyat. The public may view this statement at http://www.audit.gov.my.
Malaysia ranks among top economies in cost of doing business
According to KPMG Malaysia managing partner Datuk Johan Idris, a study by KPMG has ranked Malaysia fourth among 17 economies in an assessment comparing the economy’s competitiveness as a manufacturing hub in cost of doing business (CoDB). The study found that Malaysia is placed ahead of countries in the Asian region such as China, Japan, Vietnam and India. The study indicates that Malaysia’s CoDB Index results from high scores on the Primary Cost Index where Malaysia emerged at the top of the chart, tied with China, Mexico, and Vietnam. Malaysia had outperformed on three factors: hourly compensation costs, real estate costs and corporate tax rate. In analysing the results further, by changing the weight of the primary costs and secondary costs from equal to 70 per cent-30 per cent, Malaysia would be ranked the number one most cost-effective location in the CoDB Index. Malaysia continues to be a prime manufacturing hub for investors despite uncertainties in the current landscape. This is especially significant in our new reality, where operational stability and cost containment are central in every company’s long-term business survival. The results in this study only substantiate what Malaysian businesses already know and are proud of. As an immediate effect out of the COVID-19 pandemic, companies around the world have begun relooking at their supply chains. A study by McKinsey estimates that 16 per cent to 26 per cent of global exports, worth US$2.9 trillion to US$4.6 trillion, could move to new countries over the next five years if companies reshuffle their supplier networks. The study by KPMG proves that Malaysia has the factors for moving up the production value chain.
On The Markets
This week, on Thursday (05Nov), the Ringgit was 4.1525 against the USD from 4.1550 on Monday (02Nov). Meanwhile, the Ringgit was 3.0584 to the Sing Dollar on Thursday (05Nov). On Monday (02Nov), the FBM KLCI barely moved with -0.43 points (-0.03%) to 1466.46 from previous Friday’s close of 1466.89. As at Friday (06Nov) 10:00am, the FBM KLCI has rebounded to 1510.96 from Monday’s low following the upward trend of US markets overnight and in anticipation of a comprehensive Malaysia Budget 2021 scheduled to be tabled in Parliament today. Over in US, despite a clear winner in the Presidential elections, stocks were bullish in anticipation of a fiscal stimulus package to boost the economy and the possibility of COVID-19 vaccine. The Dow Jones Industrial Average gained 542.52 points (+1.95%) to 28,390.18 and the NASDAQ Composite index climbed 300.15 points (+2.59%) to 11,890.93.
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