Malaysia widens fiscal deficit target in budget, promises stimulus if needed

Malaysian people

Malaysian people

Malaysian Prime Minister Mahathir Mohamad said on Friday he had not received "anything official" from India, after Reuters reported that India was mulling restricting imports of Malaysian palm oil and other products.

A total of 297.02 billion ringgit (70.96 billion US dollars) will be allocated for the 2020 budget, down from 314.55 billion ringgit (75.49 billion USA dollars) allocation for this year.

Malaysia is "cautiously optimistic" it would win the confidence of investors and ratings agencies for its 2020 budget, its finance minister said on Saturday, as the government prioritized boosting growth over reducing the deficit in the short term.

Lim had said earlier it would be a "challenge" to meet the earlier deficit target for 2020.

Lim also outlined various measures and monetary incentives to encourage businesses and companies operating in Malaysia to reduce their dependence on foreign workers and hire locals.

Analysts had expected the government to unveil an expanded budget overall, but it is grappling with a RM1 trillion debt pile left behind by its predecessors and declining revenue.

Revenue is forecast at 244.53 billion ringgit in 2020, down 7.1 per cent from this year's projection. Unlike this year, there will be no repeat of a 30 billion ringgit one-off payout to the government by state energy firm Petronas [PETR.UL]. However, Mr Lim ruled out re-introducing a Goods and Services Tax (GST) that was repealed a year ago.

In an accompanying fiscal outlook report, the government said it would also set aside an additional 3 billion ringgit to speed up ongoing major infrastructure projects.

Economists say that Budget 2020, besides taking into account the need to support growth in what is expected to be a hard year ahead, is also looking beyond a one-year horizon, with many measures focused on preparing the country for the future.

Domestic demand is expected to rise 4% this year and 4.8% next year, supported by a stable labor market and low prices. The services sector, which accounts for about 58 per cent of GDP, is forecast to grow 6.1 per cent in 2019 and 6.2 per cent next year.

Policymakers expect petroleum-related revenue to fall 1.4 per cent to 50.5 billion ringgit in 2020, based on an assumed average global crude oil price of $62 per barrel.

Gross exports are estimated to expand by 0.1% in 2019 and 1.0% the following year. However, projected weakness in global and domestic demand and commodity prices are expected to slash that figure to 29 billion ringgit in 2020.