Malaysia to lower deficit target, hold off on big reforms-official

"This will be a budget that is mildly expansionary but fiscally responsible," the official, who asked not to be identified, said ahead of the budget announcement by Prime Minister Najib Razak.

Malaysia to lower deficit target, hold off on big reforms-official

World Bulletin / News Desk 

Malaysia will target a lower fiscal deficit for next year but the budget to be unveiled on Friday will still be slightly expansionary and likely stop short of major reforms on tax and subsidies, a senior government official said on Thursday.

"This will be a budget that is mildly expansionary but fiscally responsible," the official, who asked not to be identified, said ahead of the budget announcement by Prime Minister Najib Razak.

The budget for 2013 will target a reduction in the deficit target from this year's goal of 4.7 percent, the official said, sending a signal to markets that the government is committed to keeping its rising debt levels in check.

Fueled by robust domestic consumption and investment, the economy should expand by between 4.5-5 percent this year and 4.5-5.5 percent in 2013, the official said, despite the "challenging external environment."

Najib, facing a close election he must call by next April, is widely expected to announce a fresh round of handouts to poorer citizens on Friday as he tries to maintain an economic feel-good factor ahead of the polls.

But he must be wary of spooking financial markets after rating agencies Standard & Poor's and Fitch recently warned of rising fiscal pressures that could lead to a downgrade.

The Southeast Asian country's public debt as a percentage of GDP is just short of its self-imposed ceiling of 55 percent - up from 43 percent in 2008 - while its budget deficit of 4.7 percent in the first half of 2012 is the third-biggest in Asia after Japan and India.

Strong revenues in 2012 mean Najib can afford to be somewhat generous in the budget for next year.

Much-needed but economically painful reforms to broaden Malaysia's tax base and reduce its dependence on oil revenues will take a back seat at least until after the election.

The senior official said he expected a "very comfortable margin" of victory in the election and was committed to implementing the structural reforms in the years ahead.

"We have to make the reforms," the source said, adding they were a crucial part of the government's drive to turn Malaysia into a developed nation by 2020.

Reducing Malaysia's heavy subsidies on fuel and food items is a medium-term goal and would be done in stages, the official said. The government was also committed to introducing a consumption-based tax but that would take more time to win public understanding.

"That has to be based on people accepting it ... that will take a bit of time," said the official.

Najib has already announced a series of handouts this year, including 2.6 billion ringgit ($847 million) in cash payments to poor families, in an apparent bid to shore up support for the long-ruling Barisan Nasional coalition.

"It's not vote-buying, it's targeted subsidies," the official said. "It's no different to what other countries have done." 

Güncelleme Tarihi: 27 Eylül 2012, 14:43
YORUM EKLE