Prime Minister Najib Razak’s fiscal targets are under siege for a second year as an oil rout forces a reassessment of public spending plans to keep the Malaysian budget from being busted.
The budget gap may be as high as 4% of gross domestic product compared with a target of 3.1% if there are no changes to current expenditure plans, according to analyst estimates compiled by Bloomberg. Najib will announce cuts to operating expenditure and revisions in growth forecasts on Jan 28, a finance ministry official said Wednesday.
The start of 2016 is shaping out to be a continuation of turmoil that plagued Malaysia last year when foreign investors unloaded US$7 billion ($10.1 billion) of equities and bonds. Any deterioration in the deficit puts Malaysia at greater risk in the event of another exodus of capital from emerging markets, which began the year jolted by China.
"If the amount of money you take in is significantly dependent on something as volatile as oil, it is hard to sleep soundly," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. "As revenue shortfall from oil grows and grows, there is only one way to go: cut expenditures more and more" if the deficit target is sacrosanct, he said.
Economists say spending cuts would weigh on expansion, with Malaysia exporters also facing headwinds from a China slowdown and a weakening yuan. The ringgit is among the worst performers in Asia as crude dropped to a 12-year low and uncertainty over China rattles global markets.
Malaysia as Asia’s only major net oil exporter risks losing 300 million ringgit ($97.7 million) for every US$1 per barrel drop, according to government estimates. Moody’s Investors Service cut its positive outlook on the sovereign this week, while state oil company Petroliam Nasional Bhd. said crude could average $30 a barrel this year.
Najib’s plan to balance the budget by 2020 has resulted in subsidy cuts, a new consumption levy and higher taxes on the wealthy. Those efforts have been undermined by lower commodity prices while a weaker global economy has hurt exports.
Economists are divided on whether the premier will choose to cut development or operating expenditure, or revise the deficit target. In 2015, he reduced operating spending and changed the deficit target to 3.2% of GDP from 3%.
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The budget gap may be as high as 4% of gross domestic product compared with a target of 3.1% if there are no changes to current expenditure plans, according to analyst estimates compiled by Bloomberg. Najib will announce cuts to operating expenditure and revisions in growth forecasts on Jan 28, a finance ministry official said Wednesday.
The start of 2016 is shaping out to be a continuation of turmoil that plagued Malaysia last year when foreign investors unloaded US$7 billion ($10.1 billion) of equities and bonds. Any deterioration in the deficit puts Malaysia at greater risk in the event of another exodus of capital from emerging markets, which began the year jolted by China.
"If the amount of money you take in is significantly dependent on something as volatile as oil, it is hard to sleep soundly," said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. "As revenue shortfall from oil grows and grows, there is only one way to go: cut expenditures more and more" if the deficit target is sacrosanct, he said.
Economists say spending cuts would weigh on expansion, with Malaysia exporters also facing headwinds from a China slowdown and a weakening yuan. The ringgit is among the worst performers in Asia as crude dropped to a 12-year low and uncertainty over China rattles global markets.
Malaysia as Asia’s only major net oil exporter risks losing 300 million ringgit ($97.7 million) for every US$1 per barrel drop, according to government estimates. Moody’s Investors Service cut its positive outlook on the sovereign this week, while state oil company Petroliam Nasional Bhd. said crude could average $30 a barrel this year.
Najib’s plan to balance the budget by 2020 has resulted in subsidy cuts, a new consumption levy and higher taxes on the wealthy. Those efforts have been undermined by lower commodity prices while a weaker global economy has hurt exports.
Economists are divided on whether the premier will choose to cut development or operating expenditure, or revise the deficit target. In 2015, he reduced operating spending and changed the deficit target to 3.2% of GDP from 3%.
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