Emerging Asia Economics

Malaysia’s budget won’t be a giveaway bonanza

Emerging Asia Chart Book
Written by Capital Economics Economist

While Malaysia has made good progress in bringing down its budget deficit, there remains limited room for a pre-election giveaway in the 2018 budget, which is due to be announced on 27th October. Given that Prime Minister Najib Razak must hold an election by August 2018, there has been some speculation that this budget will include a generous amount of giveaways. However, there remains little fiscal space to do so if the government is to keep to its deficit target of around 3% of GDP. While oil prices have recovered slightly, they remain low by historical standards and the hole in petroleum tax revenue is likely to be permanent. Besides, there is not a huge urgency to curry favour with the electorate – the opposition remains divided and unable to mount a serious challenge to the long-standing UMNO-led government.