Voted into power in May, Prime Minister Dr Mahathir Mohamad’s government quickly revised up Malaysia’s debt to around RM1 trillion, saying it had been understated by Najib Razak, the former premier now facing multiple charges of graft and abuse of power.
The government released its economic outlook report on Friday, to accompany its first budget. The report forecast economic growth of 4.8% in 2018 – a sharp drop from the 5.9% pace a year earlier – with a slight pick up to 4.9% next year.
Last month, Mahathir had flagged expectations that growth would be between 4.5% and 4.9%, down from an earlier forecast of 5.0%.
“Private sector expenditure will remain as the key driver of growth, cushioning the effects of lower public sector spending in 2018 and 2019,” the government said in the report.
Public sector investment is forecast to contract by 1.5% in 2018 and fall further by 5.4% next year.
The slowing growth and spending forecasts come two weeks after the government abandoned previous fiscal goals, estimating wider budget deficits over the next few years.
The Pakatan Harapan government’s first budget, which is being tabled in Parliament, is expected to be austerity-flavoured as it looks to fill a revenue gap left by the scrapping of a consumption tax.
It has already announced the cancellation or suspension of at least US$20 billion in public infrastructure projects, and the government is unlikely to invest in new projects in the short-term, according to the economic report.
Private sector focus
In 2019 monetary policy will remain accommodative and any “adjustments will depend on risks surrounding the outlook for domestic growth and inflation,” the government said in the report.
Inflation is projected to increase 2.5%-3.5% next year from this year’s 1.5% to 2.5%.
The government expects the private sector to play a bigger role in development, with private investments seen growing 4.5% this year and increasing 5% in 2019.
Private consumption will remain the main growth driver. It is projected to grow 7.2% in 2018 and moderate slightly to 6.8% in 2019.
Most sectors will likely face tepid growth over this year and 2019, though the mining sector is seen rebounding from a 0.6% decline in 2018 to grow 0.7% the following year.
Agriculture is seen expanding 3.1% in 2019, improving on 0.2% projected growth this year due to expected improvements in palm oil yield.
The government said export growth will likely ease slightly to 3.9% in 2019 from 4.4% growth projected for this year.
The current account surplus is projected to narrow to RM38.6 billion in 2018, down from RM40.3 billion the previous year. The government expects it to drop further in 2019 to RM34 billion.