Malaysia pledges to narrow budget deficit as global risks loom

Kuala Lumpur

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 percent to 5 percent in 2017, from 4 percent to 4.5 percent 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 percent of GDP next year, from 3.1 percent in 2016. The premier reiterated a commitment to achieve a near balanced budget by the end of the decade.
“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.
After weathering more than a year of political turmoil and financial scandals, Najib must tackle a slowing economy while keeping voters happy ahead of a possible early general election that may come as soon as March. The premier is under pressure to find ways to sustain growth while gradually closing the budget gap after a collapse in crude prices slashed revenue in the oil-producing nation.
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.” Chong Pooi Koon, Bloomberg

Inflation outlook

Consumer prices are forecast to rise between 2 percent and 3 percent in 2017, compared with 2 percent to 2.5 percent this year, the ministry said. Inflation was unchanged at 1.5 percent in September, and the central bank cut interest rates once this year to 3 percent in July. “Monetary policy will continue to focus on price stability and sustainable growth given the risks in the global economy,” it said.