Malaysia unveils expansionary budget as polls loom; sees solid 2018 growth

Malaysia unveils expansionary budget as polls loom; sees solid 2018 growth

Malaysia Budget
Malaysia's Prime Minister Najib Razak presenting the 2018 budget at Parliament House in Kuala Lumpur on Friday (Oct 27). Malaysia's prime minister unveiled his last budget before elections, hoping to persuade voters to put aside a massive financial scandal and re-elect his long-serving coalition. (Photo: AFP / Malaysia's Department of Information / Fandy Azlan)

KUALA LUMPUR: Malaysian Prime Minister Najib Razak announced an expansionary budget targeted at his vote bank on Friday (Oct 27), as he looks to shore up support ahead of a tough election that must be called by next August.

"I stand here today ... to bring happy news that will put a smile on everyone's faces," Najib said as he delivered his budget speech in the parliament.

Najib said Malaysia plans to spend 280.25 billion ringgit (US$66.1 billion) in 2018, up 7.5 per cent from this year's allocated budget of 260.8 billion ringgit.

Spending will include aid packages worth 6.5 billion ringgit for farmers, fisherman and rubber tappers, the largest allocation yet for the groups who are among key voters for Najib's ruling Barisan Nasional (BN) coalition.

Najib also set aside 6.5 billion ringgit for rural infrastructure development, and waived tolls from key highways in Selangor, Kedah and Johor. Tolls for the Eastern Dispersal Link to and from Singapore were one of those abolished from January next year. Big allocations were also made for road projects and schools.

The prime minister announced an allocation of 6.8 billion ringgit, same as the previous year, for an annual cash handouts programme. He allocated 3.9 billion ringgit for goods and transport subsidies and set aside 2.2 billion ringgit to help home ownership under various programme.

Income tax will be cut by 2 percentage points for Malaysians earning 20,000 to 70,000 ringgit a year. A slew of benefits for civil servants were also unveiled.

Malaysia's improved economic performance and revenue collection this year, aided by higher oil prices, facilitates Najib hiking spending ahead of elections.


Full-year growth for 2017 is forecast at 5.2 to 5.7 per cent, compared with last year's 4.3 to 4.8 per cent forecast last March.

Despite increased spending next year, the fiscal deficit is seen narrowing to 2.8 per cent of GDP in 2018 from the projected level of 3 per cent this year.

Malaysia expects domestic demand and still-buoyant exports to help drive 5.0 to 5.5 per cent growth in 2018.

The 2017 forecast means Malaysia should have its fastest growth since 2014, after which a crash in commodity prices slowed exports and the ringgit currency weakened sharply, scaring off foreign investors.

The growth and other projections came in the government's annual economic report, released as Najib began his 2018 budget announcement on Friday (Oct 27).

"With the private sector prevailing as (a) key driver of growth, the government will continue to support economic expansion and safeguard the well-being of the rakyat," Najib said in the report's preface, using the Malay word for people.

The current account surplus is projected to increase marginally to 32.9 billion ringgit (US$7.6 billion) in 2018 from the 32.3 billion ringgit estimate for this year.

The report said Malaysia's fiscal deficit, tracked closely by ratings firms concerned about rising sovereign debt, should narrow to 39.8 billion ringgit, or 2.8 per cent of GDP in 2018, slightly better than the 3.0 per cent projected for this year.

The government expects inflation to "remain benign between 2.5 and 3.5 per cent" next year, tracking slightly lower than the 3 to 4 per cent level forecast for 2017.


A stronger economy and rising oil prices has helped ease pressure on Prime Minister Najib, who has been dogged by a multi-billion dollar scandal tied to state fund 1Malaysia Development Berhad (1MDB), a fund that he helped set up.

US authorities have filed several lawsuits to seize assets it said were allegedly bought using funds misappropriated from 1MDB. Najib has denied any wrongdoing.

In the economic report, the government said it expected all subsectors to register "positive growth" in 2018.

Exports of commodities have rebounded sharply this year. In the first eight months, revenue from natural gas jumped 34.6 per cent to 26.9 billion ringgit from a year earlier and crude oil earnings by 33.2 per cent to 18.2 billion ringgit.

Palm oil exports grew 18.8 per cent to 30.6 billion ringgit over the same period.

Domestic demand will continue to be the main driver of the economy, and is forecast to grow 5.5 per cent to contribute 72.9 per cent to GDP in 2018. Private sector growth is seen at 6.4 per cent in 2017, with a 71.4 per cent share of GDP.

The report said government debt stood at 50.9 per cent of GDP at end-June compared with 52.7 per cent in 2016.

It did not provide figures on its full-year debt level projection, but said that debt "remains sustainable within the prudent limit" of Malaysia's self-imposed 55 per cent ceiling.

Source: Agencies/ad/hm