Malaysia will not be able to balance its budget 2020. Najib needs to do a better job managing the economy if he wants to win the next general election.
Malaysian Prime Minister Najib Razak will face challenges in the 2018 general election. His government aimed to balance the budget before 2020. Finance minister Johari Abdul Ghani said the country would not be able to reach this goal. The new target is to achieve a balanced budget for the 2022-2023 financial year.
The Malaysian economy looked promising
The outlook for the Malaysian economy seemed to be good. Since 2009, Najib has shrunk the budget deficit annually. He cut the spending and subsidies; and he levied consumption taxes to plug the deficit in the past years.
Malaysia retained its A3 (stable) credit rating for 2017. It is an upper medium credit grade ranking by Moody. Malaysia has maintained the A3 grade since 2004. In Q3 2017, Malaysia’s GDP growth rate was among the highest in Asia. It was on target to meet its 2020 goal.
But increased government spending in the 2018 budget has ruined its 2020 dreams. Najib released Budget 2018 on 27 October 2017. The government has planned to increase expenditure by 7.5% in 2018. It will cut personal income tax for lower-income citizens. Meanwhile, it will spend billions on schools, hospitals and rural infrastructure. Najib hopes to win votes with generous polices but it will cost him his dream of a balanced economy.
Moody’s Investor Service once said the balanced target is unattainable. This is due to fall in revenues. Falling oil prices contributed to a large revenue shortfall in 2016. They will continue to affect revenue levels for the 2017-2018 financial year. Oil prices are unlikely to return to previous levels anytime soon.
Failing to meet the balanced budget goal will affect Foreign Direct Investment (FDI) into Malaysia
FDI into Malaysia has been stable. Malaysia was among the top investment destinations in 2017. However, failing to balance the budget may harm investor confidence. This will directly affect the levels of FDI into Malaysia.
The Malaysian economy is nowhere near breaking point. The deficit has been shrinking since 2009. But the blemish of an unfulfilled promise could hang heavily over Najib. His opponent boasts an impressive economic record during his time in power.
Mahathir Mohamed is the leader of Pakatan Harapan. It is Malaysia’s opposition alliance. It also proposed a budget. The budget addressed the economic issues created by Barisan Nasional (BN). It aimed to increase Malaysians’ life quality.
Mahathir created the diversified and modern economy Malaysia has today. He is already branding himself as the man with the solutions to Malaysia’s economic issues. With the 1MDB scandal also looming, his opponent has plenty of political ammunition. Buying votes at the expense of Malaysia’s economic forecast could backfire. Najib must win hearts with well-planned, long-term economic policy. There will be no shortcuts.