Malaysia is seeking to reduce its reliance on oil and gas revenues, forecasting a near 25pc fall in total petroleum revenues to 37.8bn ringgit ($9.2bn) next year as the Covid-19 pandemic continues to batter global crude prices.
The drop, from petroleum revenues of 50bn ringgit this year, is largely driven by an estimated fall in dividends from state-owned oil firm Petronas to 18bn ringgit next year, down by almost 50pc from 34bn ringgit in 2020 and just a third of the 54bn ringgit paid in 2019, according to a fiscal outlook report that accompanied the government's 2021 budget announcement on 6 November.
Revenue diversification is one of several major structural issues facing the Malaysian government, said the director of the economic studies programme at the Malaysia-based Jeffrey Cheah Institute on Southeast Asia Yeah Kim Leng.
"Reducing its dependence on petroleum revenue and Petronas' dividends is therefore not only prudent but also necessary given the decline in the world oil price and long-term trend towards reducing the use of fossil fuels to tackle climate change," he said.
Yet Petronas committed to paying a "very generous dividend" in 2020 given it is a tough year for the oil industry, said the assistant professor of business and society at Malaysia's Asia School of Business Renato Lima de Oliveira, indicating the government is not yet on a path towards reducing its reliance on petroleum revenues. "States like Sarawak and Sabah are fighting to increase their oil revenues with new state sales taxes. So institutionally, we are not seeing measures that are designed to diversify away from petroleum-related revenues."
More agricultural support
The government's 2021 budget of 322.5bn ringgit provides support for the country's agriculture sector in particular, while seeking to give a much-needed boost to an economy battered by the coronavirus pandemic.
The budget has allocated 20mn ringgit for sustainable palm oil certification programmes and a 16mn ringgit incentive for the production of latex, used to make items such as gloves.
Malaysia is the world's second-biggest palm oil producer behind Indonesia and largest supplier of gloves.
The government has also raised its Covid-19 fund ceiling by 20bn ringgit to 65bn ringgit in the 2021 budget, setting aside 1bn ringgit to fight a third wave of infections next year.
The country's economy is projected to contract by 4.5pc this year on the impact of the pandemic but rebound between 6.5-7.5pc next year, driven by stimulus packages, budget 2021 initiatives and expected global economic growth of 5.2pc, finance minister Zafrul Abdul Aziz said in his budget announcement.
This is the first budget tabled by prime minister Muhyiddin Yassin's administration, which has only a slim parliamentary majority. Muhyiddin's Perikatan Nasional coalition came close to falling apart during September-October on the possibility that United Malays National Organisation (Umno) MPs had switched support to opposition leader Anwar Ibrahim. Umno is one of the biggest component parties in Perikatan Nasional.
"Muhyiddin's position remains vulnerable even though budget 2021 is the biggest in the nation's history in terms of projected expenditure because it remains to be seen whether it can really revitalise the economy next year," said an associate professor at Malaysia's Putra Business School Ahmed Razman Abdul Latiff.
