KUALA LUMPUR: Finance Minister Najib Razak is expected to unveil a populist budget Friday evening, with an eye on the next general election.
It will include cash aid to spur consumer spending in a slowing economy, according to economists who spoke to the Nikkei Asian Review (NAR).
They said Najib, who is also prime minister, was likely to use the budget to win voters – especially from among the Malay electorate – ahead of a likely early general election in the wake of the 1Malaysia Development Berhad (1MDB) scandal that has tainted him.
“Increased cash handouts to lower-income groups and tax relief for middle-income earners are the most likely kinds of giveaways,” Capital Economics wrote in an investor note. The London-based research firm expects Malaysia’s budget deficit to narrow to 3.0 per cent of GDP in 2017, from 3.1 per cent this year.
Zakariah Abdul Rashid, an executive director at the government-backed Malaysian Institute of Economic Research, however, warned that while cash handouts could provide a short-term boost to consumer spending, such largesse was unsustainable in the longer-run, NAR reported.
NAR quoted United Overseas Bank economist Julia Goh as saying that the budget’s aim should be macro stability, which meant that any expansionary plans should be done with fiscal discipline.
“This infers striking a balance between spending priorities and resource constraints.”
RHB Research Institute said it expected the government to continue providing further tax cuts and incentives, including extending loan facilities to small- and medium-sized enterprises.
The NAR report said the brokerage arm also expected some personal tax breaks that could help keep more cash in the hands of consumers without actually reducing the tax rate.
Economic growth has decelerated for the past five consecutive quarters due to lower exports and a slump in global oil prices. Oil and gas, which accounted for 11 per cent of Malaysia’s total exports in 2015, is a major source of revenue for the government.
Malaysia’s fiscal deficit was 5.6 per cent of the gross domestic product in the first six months of this year, sharply wider than the full year’s 3.1 per cent target, noted the NAR report.
Public debt, meanwhile, hovers close to its self-imposed ceiling of 55 per cent of GDP.
“We think a lack of fiscal space keeps monetary easing in play and we forecast a final 25 basis point cut in the Bank Negara Malaysia’s overnight policy rate to 2.75 per cent by year-end,” Tim Condon, head of research at ING Financial Markets wrote in an investor note.