Malaysia may miss a goal to balance its budget by 2020 as a plunge in commodity prices forces the government to cut its projections, according to Prime Minister Najib Razak.
The budget shortfall may be "in the region" of 1 percent of gross domestic product at the end of the decade compared with a current deficit of 3.2 percent, the New Straits Times reported, citing Najib’s comments to fund managers and investors in New York. Malaysia remains committed to achieving a balanced budget by 2020, he was quoted as saying.
Policy makers have been struggling to boost confidence in the economy and government finances since oil prices started slumping late last year. The ringgit has dropped more than 20 percent versus the dollar this year, battered by a political scandal, the decline in crude prices and the prospect of higher U.S. interest rates that threaten growth.
The premier reiterated Malaysia won’t impose capital controls or peg the ringgit even as the currency depreciates to a 17-year low. It’s the worst performer against the greenback this year among major Asia Pacific currencies tracked by Bloomberg.
While Southeast Asia’s third-largest economy has run a fiscal deficit since 1998, the gap as a percent of GDP has been narrowing. To boost state coffers, Najib scrapped a decades-old fuel subsidy policy in December and started a 6 percent goods and services tax in April. Still, Najib in January revised the deficit target for 2015 to 3.2 percent from 3 percent as his administration forecast less oil-related revenue.
The government raised pump prices in October, with analysts from Nomura Holdings Inc. calling it "somewhat of a surprise to us, but is nonetheless consistent with crude oil price movements over the past month."
"This continues to show the government is sticking to its fiscal reforms, despite the political pressure, as well as the unpopularity of both the goods and services tax and the removal of fuel subsidies," Singapore-based analysts Euben Paracuelles and Brian Tan wrote in a note Thursday.
Foreign funds have dumped more than $3 billion of the nation’s shares this year as Najib grapples with allegations of financial irregularities at a state investment company, whose advisory board he chairs. He is also facing accusations of impropriety after it was disclosed that political donations ended up in his private accounts in 2013. The accounts have since been closed.
Investors in the U.S. shouldn’t be concerned with the political situation in Malaysia as there is "stability," Najib was cited by the New Straits Times as saying. 1Malaysia Development Bhd. will sort out its financial issues before year-end and is expected to further reduce its debt by 16 billion ringgit very soon, Najib said, without elaborating.