Malaysia trims 2016 growth fore­cast to 4 - 4.5 per­cent

The Pak Banker - - BUSINESS -

Malaysia trimmed its growth ex­pec­ta­tions for 2016 af­ter a de­cline in oil prices crimped the out­look for ex­ports and govern­ment rev­enue. Prime Min­is­ter Na­jib Razak is count­ing on con­sumers to hold up the econ­omy, find­ing ways to put more money in their pock­ets.

The govern­ment will re­duce manda­tory em­ployee con­tri­bu­tion rates to the na­tional pen­sion fund by 3 per­cent­age points in a move that could boost pri­vate spend­ing by 8 bil­lion ring­git ($1.9 bil­lion) a year, Na­jib said in a speech Thurs­day. The econ­omy will ex­pand 4 per­cent to 4.5 per­cent this year, com­pared with an ear­lier pro­jec­tion of as much as 5 per­cent, he said.

Na­jib is pri­or­i­tiz­ing ef­forts to halt a growth slow­down af­ter weath­er­ing a scan­dal so far over a murky $681 mil­lion "per­sonal do­na­tion" from the Saudi royal fam­ily. As he faces con­straints in in­tro­duc­ing new mea­sures to boost rev­enue, the plunge in oil meant a spend­ing re­view for a se­cond year to keep fis­cal deficit tar­gets in check and avoid a credit rat­ing down­grade.

"It has been a ' crude' awak­en­ing for Malaysia," said Wei­wen Ng, an econ­o­mist at Aus­tralia & New Zealand Bank­ing Group Ltd. in Sin­ga­pore. "Odds of fis­cal slip­page re­main high with lit­tle ma­neu­ver­ing space, es­pe­cially if oil re­mains on a sig­nif­i­cantly lower glide path and tax rev­enue is crimped by lower cor­po­rate prof­its and weaker growth."

The ring­git gained 1.2 per­cent to 4.2070 a dol­lar in Kuala Lumpur Thurs­day. The Malaysian cur­rency has strength­ened about 2 per­cent against the green­back this year, af­ter tum­bling more than 18 per­cent in 2015.

The govern­ment is stick­ing to its bud­get deficit tar­get of 3.1 per­cent of gross do­mes­tic prod­uct for 2016, Na­jib said, adding he was con­fi­dent the econ­omy grew 5 per­cent last year and the fis­cal short­fall was 3.2 per­cent of gross do­mes­tic prod­uct. "Pru­dent mea­sures" by the govern­ment will save 9 bil­lion ring­git in op­er­at­ing and de­vel­op­ment ex­pen­di­ture, he said, with­out elab­o­rat­ing on steps to be taken to achieve those sav­ings.

Malaysia will study a re­dis­tri­bu­tion and bid­ding process of its telecom­mu­ni­ca­tion spec­trum to op­ti­mize rev­enue, Na­jib said, send­ing shares of the coun­try's big­gest mo­bile providers lower. The coun­try will pur­sue tax evaders more ag­gres­sively, relook at tax- ex­empted im­ports of ve­hi­cles, cig­a­rettes and liquor on some duty-free is­lands, and pri­or­i­tize projects that have a big­ger mul­ti­plier im­pact on the econ­omy.

"The spend­ing cuts to achieve the fis­cal deficit tar­get are big on head­lines, but short on de­tails," said Michael Wan, an econ­o­mist at Credit Suisse Group AG in Sin­ga­pore. "The govern­ment might even­tu­ally have to go a bit fur­ther to meet its fis­cal deficit tar­get" by cut­ting more sub­si­dies, he said.

Moody's In­vestors Ser­vice low­ered its credit-rat­ing out­look for Malaysia this month, cit­ing an ex­ter­nal en­vi­ron­ment that has crimped govern­ment rev­enue. Malaysia, as Asia's only ma­jor net oil ex­porter, risks los­ing 300 mil­lion ring­git for ev­ery $1 per bar­rel drop, ac­cord­ing to of­fi­cial es­ti­mates.

Na­jib said Thurs­day rev­enue is es­ti­mated to fall by as much as 9 bil­lion ring­git com­pared with when oil was at $48 a bar­rel, the govern­ment's pre­vi­ous as­sump­tion level for plan­ning pur­poses for 2016. It is now as­sum­ing Brent at $30 to $35 a bar­rel.

"The govern­ment is bank­ing on the hope that a 3.4 per­cent re­duc­tion in ex­pen­di­ture will be enough to counter a 33 per­cent drop in oil price," said Wel­lian Wi­ranto, an econ­o­mist at Oversea-Chi­nese Bank­ing Corp. in Sin­ga­pore.

The govern­ment will cut the em­ployee con­tri­bu­tion rate to the pen­sion fund from March this year to De­cem­ber 2017. Na­jib also an­nounced tax re­liefs for those earn­ing 8,000 ring­git and below, a mea­sure that will cost the govern­ment 350 mil­lion ring­git and ben­e­fit two mil­lion tax­pay­ers.

To bring down costs and al­le­vi­ate the bur­den on house­holds, Na­jib said im­port quo­tas on eight agri­cul­tural pro­duce in­clud­ing meat will be lib­er­al­ized tem­po­rar­ily, while the poor­est fam­i­lies will be sup­plied with 20 kilo­grams (44 pounds) of rice a month for the rest of the year.

A key con­sumer con­fi­dence gauge fell to a record low last quar­ter, and house­holds are turn­ing more neg­a­tive in their fi­nan­cial out­look for the first half of 2016. In­fla­tion is ex­pected to be 2.5 per­cent to 3.5 per­cent this year, cen­tral bank Gov­er­nor Zeti Akhtar Aziz said Thurs­day, higher than an Oc­to­ber fore­cast of 2 per­cent to 3 per­cent.

"The ac­tual delta to the econ­omy de­pends how much is be­ing spent by house­holds as com­pared to be­ing saved as pre­cau­tion­ary sav­ings in such dire eco­nomic en­vi­ron­ment," ANZ's Ng said.

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