KUALA LUMPUR, 21 December, 2020, (TON): Malaysia will enter 2021 with its biggest spending plan yet to spur its virus-hit economy, but concerns are focusing on how to foot the bill after a sovereign-rating downgrade earlier this month.

The government expects revenue to rise 4.2 per cent next year, counting on higher tax collections, without raising taxes or introducing new ones - coupled with a move to slash its dependence on oil. The plan hinges on one key assumption: that tax income will rise as economic activity returns close to normal.

Malaysia’s economy is losing an estimated MYR 2.4 billion daily during the Movement Control Order (MCO), a total of MYR 63 billion, as all the business activities are suspended.

According to the Malaysian Ministry of Finance, Malaysia’s gross domestic product (GDP) is expected to contract by 4.5% in 2020, before regaining its growth in 2021 of 6.5% to 7.5%.

"If the economy does not recover as strongly as the 6.5%-7.5% that the government is expecting, any revenue shortfall is likely to manifest" in lower tax revenue, said Mr Wellian Wiranto, an economist at Oversea-Chinese Banking Corp in Singapore.

Even with the pandemic still raging, the government relaxed restrictions this month to give the economy some breathing room. Daily virus cases hit a record-high of 2,234 on 10^th December.

Since abolishing an unpopular Goods and Services Tax in 2018, the country has depended on oil-and-gas revenue and dividends, largely from state energy company Petroliam Nasional Bhd, to fill its coffers. That backfired when crude prices plunged this year, contributing to a 14 per cent decline in government revenue for 2020.

Earlier this year, the World Bank’s Malaysia Economic Monitor, projected Malaysia’s economy to contract by 3.1 percent in 2020 due to a sharp slowdown in economic activity caused by COVID-19 and measures to contain its spread.

The implementation and subsequent extension of the Movement Control Order (MCO) have greatly affected Malaysia’s economic performance.