World Economy

Malaysia’s Razak Vows to Restrain Budget Deficit

Malaysia’s Razak Vows to Restrain Budget DeficitMalaysia’s Razak Vows to Restrain Budget Deficit

Malaysian Prime Minister Najib Razak pledged to keep the budget deficit under control in the face of global risks and low oil prices, while relying on key infrastructure projects and cash handouts to help underpin growth in the economy.

The government estimates gross domestic product will expand 4% to 5% in 2017, from 4% to 4.5% this year, the ministry of finance said in its 2016/17 economic report released Friday as Najib began his annual budget speech. The fiscal shortfall is forecast to narrow to 3% of GDP next year, from 3.1% in 2016. The premier reiterated a commitment to achieve a near balanced budget by the end of the decade, Bloomberg reported.

“With prospects for global growth and trade remaining uncertain, 2017 will continue to be a challenging year for us,” Najib said in the report, citing risks from a protracted period of low oil prices and volatile financial markets. Economic expansion will be underpinned by strong domestic demand, especially private sector expenditure, the report said.

His administration is counting on ongoing projects to draw private investment, including the 1,796-kilometer highway linking the Borneo states of Sabah and Sarawak, Petroliam Nasional Bhd.’s RAPID refining development in Johor and subway construction in the capital. Cash transfers to low-income earners and lower contributions by workers to the national pension fund will support consumer spending, the finance ministry said.

The government will focus its own spending on upgrading roads, rural infrastructure, public transport in cities and to provide for education and healthcare, the ministry said.

“Private sector activity will be supported by pro-growth fiscal and accommodative monetary policies in an environment of stable inflation,” according to the report. “Public sector expenditure will be driven by higher capital investment by public corporations.”

 Inflation Outlook

Consumer prices are forecast to rise between 2% and 3% in 2017, compared with 2% to 2.5% this year, the ministry said. Inflation was unchanged at 1.5% in September, and the central bank cut interest rates once this year to 3% in July.

“Monetary policy will continue to focus on price stability and sustainable growth given the risks in the global economy,” it said.

Other highlights from the budget report include the following:

— current-account surplus forecast to narrow to 14.8 billion ringgit ($3.5 billion) in 2017 from 16.4 billion ringgit this year

— goods and services tax collection seen rising to 40 billion ringgit next year from 38.5 billion ringgit this year

— share of oil-related income to government revenue is estimated to drop to 14.6% this year from 21.5% in 2015

— Subsidies and social assistance spending projected at 22.4 billion ringgit in 2017 down from 24.6 billion ringgit in 2016

— Emoluments to rise to 77.4 billion ringgit next year from 73.9 billion ringgit in 2016.

The estimates for 2017 exclude measures to be announced in the budget.


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