SERC executive director Lee Heng Guie: "The state of worry, anxiety and stress about the rising numbers of new infection cases would dent a full restoration of consumers’ sentiment and still sluggish business confidence."
KUALA LUMPUR: The healthcare sector is expected to receive a higher budget allocation under the Budget 2021 to support Ministry of Health and other relevant ministries’ efforts in battling Covid-19.
In the "Thoughts” column on www.bernama.com, executive director of the Socio-Economic Research Centre (SERC) Lee Heng Guie said confidence in the future path of virus development and the availability of vaccines is needed for a full recovery.
"Mirroring the uncertainty around the likely trajectory of a third wave of coronavirus, there is still substantial uncertainty surrounding the strength and path of an economic rebound in 2021.
"The state of worry, anxiety and stress about the rising numbers of new infection cases would dent a full restoration of consumers’ sentiment and still sluggish business confidence,” he said in his two-part article, "The 2021 Budget: Measured Fiscal Booster Dose”.
If the third wave of COVID-19 worsens, leading to wide-scale targeted precautionary measures and stricter lockdowns, Lee said it would temper the anticipated economic recovery in the fourth quarter of 2020 and in 2021.
"The current uneven and weak economic and business conditions cannot withstand another ‘sudden stop’ in activities due to a total lockdown,” he said.
Budget 2021 will be presented on Nov 6, 2020, at a time when the economy is still reeling from the COVID-19 pandemic-induced worst economic contraction, he said.
As such, Lee said that fiscal prudence should give way to help revive demand even if the fiscal deficit is going to be much higher than anticipated.
"Once growth revives, fiscal deficit can be managed in the coming years through the implementation of a credible and sound fiscal consolidation framework over the medium-term,” he said.
He said a five-year Fiscal Stability Framework must be formulated to reset fiscal consolidation path, which include the rationalisation and optimisation of operating and development expenditure, the broadening of revenue base, strengthening of tax efficiency, plugging the tax gap and shadow economy as well as containing both direct debt and contingent liabilities of the government.
This, he said, calls for the legislation of the Government Procurement Act and Fiscal Responsibility Act.
"We believe that global rating agencies will give the government breathing space to fix the economy despite a temporary fiscal slippage, as long as the government remains committed towards fiscal consolidation when the economy recovers,” he added.
Lee said the government had demonstrated a good track record of fiscal consolidation during two distinctive periods, including the painful fiscal structural adjustment measures undertaken in early 1980s, which had resulted in six consecutive years of budget surpluses ranging between 0.2 per cent of gross domestic product (GDP) and 2.1 per cent of GDP during 1992-1997.
Another notable period was in the aftermath of the 2008-2009 Global Financial Crisis, when the budget deficit ratio was brought down progressively for eight years in a row, from 6.5 per cent in 2010 to 2.9 per cent in 2017. - Bernama