Malaysian Prime Minister Najib Razak yesterday courted voters with cash aid and subsidies and pledged to cut the country’s large fiscal deficit to keep the economy on a strong growth track.
However, opposition lawmakers walked out of the parliament chamber calling the budget unrealistic and blaming Najib for the multibillion-dollar corruption scandal linked to state fund 1Malaysia Development Berhad (1MDB).
Southeast Asia’s second-largest oil producer and the world’s second-largest exporter of liquefied natural gas was left reeling from the slump in global crude prices late last year, forcing it to slash its budget in January and lower its growth target to 4 to 4.5 percent.
Najib said the outlook was improving and expects growth to pick up next year to 4 to 5 percent.
Spending is expected to rise 3.4 percent to 260.8 billion ringgit (US$62.3 billion) next year, but the budget deficit would be cut to 3 percent of GDP from a target of 3.1 percent this year, he said.
Ratings agencies have warned of a possible downgrade if the budget deficit is too large.
“We are now on the right track, as we have and are taking firm, bold and right decisions despite the measures being unpopular,” Najib said in his speech in parliament.
“We have laid strong foundations for the country’s long-term financial and economic position,” he said.
Najib was widely expected to present a populist budget to shore up support ahead of possible early elections that he might call next year.
Najib also announced an allocation of 6.8 billion ringgit to the government’s annual cash handouts program. He said 10 billion ringgit would be set aside for subsidies next year.
The government’s housing program for first-time homebuyers is set to be expanded, while a special fund of up to 3 billion ringgit would be allocated for investment in small and mid-cap companies.
Malaysia’s stock market, the ringgit currency and government bond yields were largely unmoved.
“In our view, it remains a fine balancing act to maintain fiscal prudence and growth, with oil as the wild card,” said Weiwen Ng, an analyst at ANZ Research.
The budget was overshadowed by criticism from opposition leaders over the financial scandal tied to state fund 1MDB, whose advisory board Najib chairs.
The indebted fund is at the center of a civil suit filed by US prosecutors and probes in at least six countries including Switzerland and Singapore.
Najib, who is also the Malaysian Minister of Finance, has denied any wrongdoing in the 1MDB scandal.
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