National Budget & Public

Sector Financing

1
Policy on Budget
 Annual planning to stimulate economic growth and
provide equal distribution that is supported by a
stable financing.
 Objective:
 Efficient economic management
 Control government spending
 Economic growth
 Achieve price stability and control inflation
 Distribution mechanism

2
National Budget
 Record government revenue and
expenditure for a particular year.
 Deficit budget (expenditure >revenue)

 Surplus budget (revenue> expenditure)

 Balanced budget (expenditure = revenue)

3
Budget Flow
 Malaysia recorded deficit budget most of
the time.
 Control spending

 Government revenue must be sufficient to at

least cover operational budget.

4
 Public Sector Financing
 Spending is made by federal or state
government.
 Public expenditure:
 Operational budget
 Developmental budget

5
Operational Budget
 Categorized by object and sector
 Expenditure by object: salary, pension, subsidy,
scholarship, state government allocation.
 Expenditure by sector: security, social
service, economy, public administration
 Operational budget is the largest component of
national budget, a reduction in operational
budget leads to a significant saving in overall
public spending.

6
Developmental Budget
 Capital expenditure on socioeconomic project to
upgrade socioeconomic status and stimulate
growth.
 Security:
 Défense, domestic security
 Social Services:
 Education, Health, Housing
 Economic sector:
 Agricultural and rural development.
 Public infrastructure and facility, transportation

7
Government Revenue
 To cover the cost of expenditure.

 Revenue is obtained from taxes revenue,

non-taxes revenue and receipt.

8
Tax Revenue
 Direct tax , Income tax, Indirect Tax and
Duty
Direct Tax: individual income tax, petroleum

income tax, corporate tax etc
 Indirect Tax: Export duty, Import duty, sales tax,
service tax, gambling tax

9
Non-Taxes Revenue & Receipt

 Non-Tax Revenue: license, permit, penalty,

government agency contribution
 Receipt: reimbursement of expenses, inter
agency credit etc
 Showed increasing trend every year.

10
Public Sector Financing
 Explain how government funds deficit
budget.

11
Federal Government Debt
 Government obtains loan from individual,
local and foreign financial institute
 Type of government debt:
 Domestic Debt
 Foreign Debt

12
 Domestic Debt:
 Short and medium term loan
 Ex: investment certificate, government
guarantee letter
 Foreign Debt:
 A long term loan from foreign institution.
 Ex: Loan from International Monetary Fund
(IMF)

13
 Government Debt Flow

 1960s – 1970s: Government debt is under

control
 A sharp rise in government debt during
recession.
 Government debt is mainly to fund government
development project.

14
Source of Loan
 Source of loan varies by type of domestic
and foreign loan.
 Domestic:
 Government guarantee letter (86 – 89%)
 Treasury Bill (6 – 7 %)
 Investment Certificate (2 – 3%)
 Other sources(3 – 6%)

15
 Source of Loan
(continued)
 Source of foreign debt is obtained through
specific foreign project loan to fund certain
development project.
 Asian Development Bank and World Bank were
main sources of fund during 1970s.
 Increase amount of loan from Japan.
 Decrease in loan project from US, UK and
Germany.

16
National Budget 2021
 Budget Approach

Zero Based Budgeting Outcome Based Budgeting

PH VS BN Government
Government
COST SAVING
VS OUTCOME

Case Study: East Coast Rail Link (Land Bridge)

BN: Cost RM66B (Bentong Route) 665KM

PH: Cost RM44B (Negeri Sembilan Route) 640KM

Ratio Freight to Passenger -> 70:30

BUDGET PRINCIPLE
TWO BUDGET COMPONENT:
Operation (OE) + Development (DE)

Surplus Budget
Revenue > OE + DE

Deficit Budget
Revenue < OE + DE:

i) Revenue > OE

ii) Revenue < OE

Last time operating expenditure was higher than revenue

was in 1987 ($2.042B)
GOVERNMENT REVENUE &
EXPENDITURE

COVID Allocation
2020: RM38B
2021: RM17B

Operating expenditure cant be

smaller than government revenue.

Difference between revenue and

operating expenditure is getting smaller.

Last time operating expenditure was higher

than revenue was in 1987 ($2.042B).
WHY WAS 2019 GOVERNMNET
REVENUE HIGHER?

RM30B: Special dividend from

Petronas

Without special dividend from

Petronas, government revenue
was not sufficient to cover
operating cost.
TOTAL BUDGET (2010-2021)
 BUDGET 2020 REVIEW
Expected Revenue 2020
RM244.53B
Actual Expenditure 2020:
Actual Revenu 2020 RM314.72B
RM227.27B

Actual Expenditure 2020 Actual Expenditure 2020

Operational: RM226.72B Developmental: RM50B
COVID: RM38B
BUDGET 2021 SUMMARY
BUDGET REVENUE AND
EXPENDITURE (2021)
EXPENDITURE BREAKDOWN
TOTAL EXPENDITURE BY
MINISTRY
 ECONOMIC RECOVERY
ALLOCATION 2020
Ratio of COVID-19 Stimulus Package to GDP by Country

COVID 2020 Stimulus Package

Economic Stimulus RM20B
Package
Prihatin Package RM230B
Additional Prihatin RM10B
Package
Economic Recovery RM35B
Plan
Kita Prihatin Package RM10B
% of GDP 21%
 DIFFERENT BUDGET
APPROACHES IN TWO
ECONOMIC CRISIS
Cause: Companies were losing Cause: Companies were not
huge amount of capital. able to operate.

1997 1998 2020 2021

(RM) (RM) (RM) (RM)
Revenue 63B 55B Revenue 227.27B 236.9B
Operating 44B 46B Operating 226.72B 236.5B
(OE) (OE)
Difference 19B 8B Difference 0.55B 0.36B

Difference between revenue and OE was larger during 1998

economic crisis.
 L, V, W SHAPE OF ECONOMIC GROWTH

Penjana
Economic Economic Bajet
Package
Emergency slow down 2021

RMCO
MCO RMCO CMCO
2
No new COVID wave

New COVID wave

March-May July-August Oct- 2021 -
Nov >

96% of national debt is domestic debt. Provide space to government to

71% of national debt is long term debt. increase debt during crisis