KUALA LUMPUR: The government remains committed to gradual fiscal consolidation, despite the burden of servicing the nearly RM1.1 trillion of debt and liabilities inherited from the previous administration, said Finance Minister Lim Guan Eng.
“Government recorded a fiscal deficit of 3.7 per cent of gross domestic product (GDP) in 2018 and is on track to achieve the targeted deficit of 3.4 per cent in 2019,” he said when tabling the 2020 Budget, themed Driving Growth and Equitable Outcomes Towards Shared Prosperity in Parliament today.
In the previous budget, the government had announced a fiscal deficit target of 3.0 per cent for 2020.
However, he said a heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration requires pre-emptive fiscal measures.
“To sustain economic growth, the government will be adopting a mildly expansionary budget, with a revised target of 3.2 per cent fiscal deficit in 2020.
“We expect the fiscal deficit to reduce further on average at 2.8 per cent GDP over the medium term,” he said.
Lim said the government has allocated a total expenditure of RM297 billion, RM19.5 billion more than the RM277.5 billion allocated for the 2019 Budget.
The 2020 Budget comprises operating expenditure of RM241 billion and development expenditure of RM56 billion.
The government also allocated contingency reserve of RM2 billion for the 2020 Budget.
The Asian Strategy and Leadership Institute Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam said the world economy is slowing down and may be going into a recession.
“This year’s budget has to be expansionary, to counter the recession, but the budget deficit is large and national debt is quite huge,” he said.
Navaratnam said the 2020 Budget cannot be too expansionary nor can the budget deficit be cut back as this would worsen the economic slowdown and cause more unemployment and a loss of general socio-economic well- being.
“Thus the budget can only be ‘mildly expansionary’ to consolidate and minimise the collateral damage of the coming economic slowdown,” he said.
He said if the 2020 Budget strategy expands too strongly, there will likely be the risk of being downgraded in terms of the country’s credit ratings and investor.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said higher expansionary budget to provide insurance on the domestic economy against ongoing external risk.
“We do not expect global rating agency to build a rating review case on Malaysia as the government remains committed towards meeting the medium-term fiscal consolidation stability framework.
“There is a need to strike a balance between supporting domestic economic activity and consumption and the containment of government debt and liabilities,” he said.