KUALA LUMPUR, Jan 19: Prime Minister Najib Razak will announce policy changes, including likely budget revisions, on Tuesday to help Malaysia adjust to the impact of reduced oil and gas earnings due to the slump in global crude prices.
The announcement, scheduled for 10 a.m (0730 IST), will be made at Putrajaya International Convention Centre. A press statement will be issued after Najib’s speech. “Tomorrow morning I will announce the adjustments that are needed, intervention that is needed in a scenario whereby we need to act more proactively,” Najib said on Monday, according to local news portal Malay Mail Online. Malaysia’s 2015 budget, tabled in October 2014, was presented with the assumption that oil prices would have kept to $100 a barrel, whereas the price of Brent crude has fallen by more than half.
The Malaysian ringgit was emerging Asia’s worst performing currency in 2014, and having lost 1.9 percent since the start of this year it still holds that unwanted ranking.
Malaysia’s currency and stock market showed scant reaction to news of the looming policy announcment. Analysts were uncertain how far Najib would change policies, but expected him to reaffirm commitment to bringing down the fuiscal deficit.
“It’s a tough balancing act but the preference would be to try to stick to their fiscal target as much as they can,” said Euben Paracuelles, economist at Nomura Holdings. Malaysia’s fiscal deficit target for 2015 is 3 percent of goss domestic product, reduced from a target of 3.5 percent for 2014.
The government is likely to hold on to its 3 percent fiscal deficit target by using savings derived from the elimination of fuel subsidies and earnings gained from a consumer tax set to be introduced in April. “This offers a buffer and flexibility for the non-essentials in terms of operating expenditure. It’s still possible for them to get 3 percent,” said Paracuelles, adding that the government risks a ratings downgrade if its fiscal deficit goes beyond 4 percent. Analysts believe the government needs to reduce its growth forecast, as an unrealistic assumption will lead a sharp rise in Malaysia’s debt to GDP ratio. The government has forecast a 5.0 to 6.0 percent growth for this year, whereas market forecasts are for around 4.0 percent growth.
“Najib may hint that a five to six percent growth may not be achievable in part of the global oil price plunge but it’s likely the official figure would only be released in March,” said Paracuelles.
(AGENCIES)
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