KUALA LUMPUR, Malaysia – Malaysia on Tuesday cut its economic growth forecast for this year and announced a slew of austerity measures as tumbling oil prices force the government to slash spending.
Prime Minister Najib Razak said the government’s 2015 budget, announced in October, was based on oil prices averaging $100 a barrel but this projection was no longer realistic as global crude prices have dropped by over 50 per cent. State oil company Petronas contributes about a third of Malaysian government revenue.
The dramatic slide in oil prices since the middle of last year has strained the finances of oil producing countries from the Middle East to Russia and Venezuela. It is also reducing costs for households and businesses, providing a boost that is partly offsetting weakness in the global economy.
Najib, who is also finance minister, said the government lowered its oil price forecast to $55 a barrel, which will lead to a revenue shortfall of 8.3 billion ringgit ($2.3 billion) despite savings from the removal of fuel subsidies last month.
He said development spending would still be maintained at 48.5 billion ringgit ($13.5 billion) but the government will slash its operating expenditure, initially set at 223.4 billion ringgit ($62.3 billion), by 5.5 billion ringgit ($1.5 billion).
The economy is forecast to grow between 4.5 and 5.5 per cent this year, while the budget deficit is expected to equal 3.2 per cent of gross domestic product. Earlier, the government forecast the economy to expand 5-6 per cent and the budget deficit to narrow to 3 per cent from 3.5 per cent in 2014.
Without austerity measures, Najib said the budget deficit would have shot up to 3.9 per cent of GDP this year.
“We are not in crisis,” Najib said in a televised speech. “We are taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control. This is to ensure that our economy continues to attain a respectable and reasonable growth.”
Malaysia’s ringgit has depreciated by 10 per cent against the dollar in the last four months and the country’s current account surplus is shrinking.
Najib said the financial system was still functioning in an “orderly manner” and voiced confidence that the ringgit, currently hovering at 3.60 to the dollar, would recover over time.
The sudden revisions to the budget were criticized by opposition lawmakers.
Since the earlier budget was approved by Parliament in October, opposition lawmaker Tony Pua said Najib’s ruling party, in power for nearly six decades, should have also sought approval from Parliament to revise the budget.
He said the decision showed the government’s “utter contempt and disdain” for the legislature.
Najib said the government will trim spending on supplies and services such as overseas travel and the use of professional services to help save 1.6 billion ringgit ($446 million). Transfers and grants to government-linked bodies and agencies will be reviewed to save a hefty 3.2 billion ringgit ($892 million), he said.
A three-month national service program, part of boot camp training for 18-year-olds, will be deferred to save 400 million ringgit ($111 million), while postponing purchases of non-critical assets will save 300 million ringgit ($84 million), he said.