Increased government spending poses risks for Malaysia: analysts

The fiscal deficit might exceed targets.

Malaysia recently rolled out a series of fiscal measures to help citizens cope with slowing economic growth. While such measures will be beneficial to the population, analysts at BMI Research warn that increased government spending will put the country at risk if oil prices fall below the government’s forecast.

Among Malaysia’s new measures is a special MYR2,000 tax exemption for individual taxpayers with a monthly income of MYR8,000 and below. This measure is expected to benefit 2mn taxpayers. In addition, MyBeras, a new welfare program, will see registered hardcore poor families receive 20kg of rice a month.

Lastly, the government also reaffirmed its commitment that civil servants would receive their promised yearly salary increment as outlined in the earlier 2016 budget.

According to BMI Research, Malaysia will only be able to keep its fiscal deficit target at 3.1% of the GDP if oil prices remain at US$30 to US$35 per barrel.

“While we maintain our constructive outlook on Malaysia's ability to reduce its fiscal deficit, the increase in spending could present downside risks to our view should oil prices fall further,” said BMI Research.