By Prem Kumar
KUALA LUMPUR
Malaysian Prime Minister Najib Razak is expected to shave up to 6 billion ringgits ($1.68 billion) from the budget in the face of falling fuel prices, a weak currency and the need to restructure flood-hit states.
Razak is due to announce the revised 2015 budget at a special briefing in Malaysia’s administrative center Putrajaya Tuesday.
The original budget, announced in October, was structured on the government’s assumption that oil would remain at around $105 a barrel. The price currently hovers around $50 per barrel.
The announcement would encompass major cuts across the government, a Treasury official told The Anadolu Agency.
The official, who spoke on condition of anonymity, said the final details would be tweaked by Razak personally.
The 6 billion ringgit cut is milder than the widely-anticipated 10 billion ringgit reduction expected by economists and analysts, as Malaysia strives to achieve its 3 percent deficit target this year.
The government had allocated a 223.4 billion ringgit budget for 2015 but the falling price of oil has hit Malaysia hard. The government receives around 40 percent of its revenue from national oil company Petronas, which has warned of lower dividends.
Fundsupermart.com analyst Jason Wong told AA the lower level of expenditure cuts reflect the government's confidence in meeting fiscal deficit targets this year.
“The milder cut is good news to investors because big cuts from the 2015 budget only means that the country is not doing well now as it is badly impacted by [the] weakening oil price,” he said.
Kenanga Investors Berhad Chief Investment Officer Lee Sook Yee said the budget cut is needed to prevent a deficit of greater than 3 percent for the year.
Without budgetary savings, the fiscal deficit could reach 4.1 percent, she said.
“Even with the removal of subsidy on fuel, there will still be a net gap of 1.2 percent to the government's revenue after Petronas' announcement,” Lee said. “Based on our calculation, if the government doesn't take any measures to cut the budget expenditure this year it might not meet its fiscal deficit target.”
However, analysts remain confident that the savings can come from delaying several infrastructure projects, such as highway and rail schemes that were budgeted at 43.1 billion ringgits.
Some have suggested the government could refinance these projects through public-private partnerships.
Malaysia is also expected to spend around 2 billion ringgit on restructuring areas severely affected by last year’s monsoon flood, the worst in 30 years with more than 250,000 people evacuated.
Three east coast states, Pahang, Kelantan and Terengganu, suffered severely and floods also hit Perak, Johor, Selangor and Negri Sembilan.
