Malaysia to expand budget in bid to counter economic slowdown

Malaysia will present its budget on Friday, seeking to temper weak economic growth, massive debt and the effects of the protracted US-China trade war

The economy grew faster than expected in the first half, but analysts expect a slowdown

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Malaysian Prime Minister Mahathir Mohamad speaks after attending a session of parliament. Photo: DPA

Published: 12:58pm, 8 Oct 2019Updated: 11:51am, 9 Oct 2019

Malaysia’s government is likely to present an expanded budget on Friday to temper a weak economic outlook, as it grapples with global recession fears, the protracted US-China trade war and a large debt pile left behind by its predecessors.

Southeast Asia’s third-largest economy bucked a global cooling trend and grew faster than expected over the first half of 2019, but analysts said growing protectionist policies around the world will eventually drag on the trade-reliant country.

Prime Minister Mahathir Mohamad’s government will need to sustain its development spending to prop up domestic demand next year, economists have said, even as it continues to deal with 1 trillion ringgit (US$238.66 billion) in debt that has been blamed on embattled former premier Najib Razak’s administration.

“We think Budget 2020 is likely to include a contingency plan to counter the effects of a slowdown from the US-China trade war – a so-called mini fiscal stimulus package,” RHB Investment Bank said in a note.

The contingency fund, which the bank estimated could amount to 3 billion ringgit, will be on top of an estimated 55 billion ringgit that the government is likely to set aside for its 2020 development budget, RHB said.

Mahathir’s government bucked expectations when it tabled an expanded budget in November, in a bid to boost revenue despite the slowing economy. It also set a higher fiscal deficit target over the next few years to make room for domestic spending while chipping away at its debt.

China and Malaysia resumed a massive Belt and Road Initiative train project in July at a heavily discounted cost after a year-long suspension of the project by Mahathir, who followed through an election pledge to renegotiate or cancel “unfair” Chinese mega-projects approved by his predecessor Najib.

An expanded budget for next year could mean a slower pace of fiscal consolidation than forecast by the government, though it is something that is to be expected with the soft outlook, Standard Chartered said.