Malaysia widened its budget deficit target for next year, giving the government space to support growth as it seeks to lure foreign investment amid the US-China trade war, reported Bloomberg.
Finance Minister Lim Guan Eng revised the 2020 deficit goal to 3.2 per cent of gross domestic product from three per cent previously, projecting a decline in revenue next year.
Even with the upward revision, the deficit is seen narrowing from this year’s expected 3.4 per cent. Lim pledged to bring the fiscal gap down to 2.8 per cent of GDP in the medium term.
As the trade war forces companies to re-evaluate their China footprint, Lim said Malaysia can take advantage to woo overseas investment.
The government will give incentives to firms—including a 10-year tax break for the electronics sector—provide special perks for Fortune 500 companies and may create a special channel for investment from China, said Lim.
“The protracted trade war creates a unique opportunity for Malaysia to again be the preferred destination for high value-added foreign direct investments, foreign direct investment into Malaysia surged 97 per cent in the H1 2019 from the same period a year earlier,” said Lim.
The finance minister is planning to increase development spending for transport, energy and utilities as well as trade and industry, while reducing the state’s operating expenditures.
The wider deficit target comes on the back of a 7.1 per cent drop in revenue to MYR 244.5 billion ($58 billion) next year. State oil firm Petroliam Nasional (Petronas) is expected to cut its dividend payout to MYR 24 billion next year, after doubling its contributions this year to help with state revenue.
Lim said the government had no intention to reintroduce a Goods and Services Tax, reiterating recent comments from Prime Minister Mahathir Mohamad. Mahathir scrapped the tax in June 2018, fulfilling a campaign pledge but putting state revenues under pressure. The government is promising more subsidies and social assistance as part of Mahathir’s election pledge to lower living costs.