© Reuters. FILE PHOTO: People dine in at a restaurant in front of Petronas Twin Towers, in Kuala Lumpur, Malaysia November 5, 2020. Picture taken November 5, 2020. REUTERS/Lim Huey Teng/File photo
By Danial Azhar
KUALA LUMPUR (Reuters) – Malaysia on Friday unveiled a tighter budget for 2024, focusing on subsidy rationalisation to strengthen its fiscal position, as an economic slowdown puts a strain on government spending.
Prime Minister Anwar Ibrahim is under pressure to revive Malaysia’s export-driven economy amid moderating growth, a weakening local currency and a rising cost of living.
Anwar, who is also finance minister, is pushing a shift away from blanket subsidies to a system that mainly aids lower-income groups.
In a report released alongside the budget presentation on Friday, Anwar said his administration would prioritise the wellbeing of the people and focus on strengthening Malaysia’s fiscal sustainability.
“The prosperity of the nation must benefit all segments of society… it is vital to ensure that the economic pie distribution is fair and equitable,” he said.
Deepened geopolitical tensions and further tightening of monetary policies to offset inflation have increased the risk of a global slowdown, Anwar said, adding that Malaysia is not immune to these developments.
Anwar in his budget speech to parliament said his government was confident of reaching its 2024 economic growth target of close to 5%.
He said service tax would be increased to 8% from 6% and a capital gains tax would be enforced at a rate of 10% from March 1 next year. A high-value goods tax of 5% to 10% would also be introduced, he said.
Targeted subsides would be implemented in phases starting next year and the savings from subsidy rationalisation would be channeled to increase cash aid from 8 billion to 10 billion ringgit, he added.
Temporary price controls on chicken and eggs would be lifted as supplies had stabilised, Anwar said, and the government intended to rationalise diesel subsidies in a phased manner.
The government forecast the fiscal deficit to further narrow to 4.3% of GDP in 2024 from an estimated 5% this year.
Malaysia lowered its outlook for this year’s economic growth to about 4% and forecast 4% to 5% expansion in 2024.
Anwar’s government plans to spend 393.8 billion ringgit ($83.52 billion) in 2024, lower than this year’s spending estimate of 397.1 billion ringgit.
Malaysia is projected to spend 52.8 billion ringgit on subsidies and social assistance in 2024, down from the 64.2 billion ringgit expected this year.
Inflation could go higher due to the move to targeted subsidies, the government said.
Malaysia expects inflation at 2.1% to 3.6% for next year, compared with this year’s revised estimate of 2.5% to 3%.
In the budget report, the government said it would shift to a targeted subsidy system for fuel and electricity, but did not elaborate.
Revenue for next year is expected to jump to 307.6 billion ringgit from 303.2 billion ringgit.
State oil company Petronas is expected to pay the government a dividend of 32 billion ringgit next year, lower than the 40 billion ringgit projected this year, reflecting reduced dependency on petroleum-related revenue.
Federal government debt is seen at around 64% of GDP in 2024, up from 62% this year.
The government said it is committed to reduce the debt-to-GDP ratio through policy measures, including a newly passed fiscal responsibility act.
($1 = 4.7150 ringgit)
(This story has been corrected to reflect that cash aid will increase from ‘8 bln to 10 bln ringgit’, not ‘by 8-10’ bln ringgit, in paragraph 9)
