Malaysia Will Not Reach its 2020 Budget Goal

Malaysia is unlikely to meet the goals it sets for a balanced budget by 2020. It will need another two to three years to reach the objective, according to the second finance minister of the country.

Malaysia unlikely to reach its balanced budget goal by 2020.

The change in the budget target follows comments from ratings agencies late last year, which the Southeast Asia economy might struggle to meet its goals in the stated time-frame due to a run up in expenses.

“I don't think by 2020 the government can achieve a balanced budget because if you do that, basically you will squeeze economic development,” said Johari Abdul Ghani, the second finance minister.

He also added that the government would have to spend in order to stimulate the economy.

“We will try to extend it to 2022-23,” he stated.

Johari Abdul Ghani repeated the projections stated previously that the fiscal deficit will be decreased to 2.8 percent of gross domestic product this year from 3 percent in 2017.

Prime Minister Najib Razak has been able to lessen the fiscal deficit of Malaysia every year since he ruled in 2009 and that has been important for maintaining Malaysia’s investment-grade sovereign credit ratings.

However, some analysts are worried that the rise in government spending will delay the pace of deficit reduction going forward.

The Prime Minister stated a spending increase of 7.5 percent for 2018. He also added that the government plans to cut personal income tax for lower-income citizens, pay more the pensioners, and spend billions on schools, hospitals, and rural infrastructure.

According to a ratings agency, it does not expect the country to achieve the balanced budget target by 2020. It also said that increasing the spending in the run up to the elections a shortage of revenue reforms slowed the paced of deficit reduction.

Meanwhile, Fitch stated in October that the 2020 target of Malaysia would “require a step-up in consolidation efforts in 2019 and 2020, but is not unattainable.”

Prime Minster Najib Razak confronts his toughest election yet as he looks to face bad publicity from a corruption scandal, which involved state-owned fund 1Malaysia Development Berhad and an increasing challenge from his former mentor turned opponent, Mahathir Mohamad.

The economy of Malaysia stretched at its fastest pace in more than three years in the third quarter of 2017, which is a turnaround from 2016 when the oil prices went down.

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