With the economy battered by falling oil prices and a global slowdown,
on Thursday revised downward its growth forecast for this year to between 4.0 and 4.5 percent, as the government sought to trim its budget by 4 percent, or 9 billion ringgit
The gross domestic product was originally targeted at between 4.0 and 5.0 percent when Prime Minister Najib Abdul Razak tabled the 2016 Budget in Parliament for approval last October.
The budget then was premised on an estimated average crude oil price of $48 per barrel. Prices have since fallen to around $30 per barrel, bad news for a government for which nearly 20 percent of its revenue last year was derived from oil-related taxes, royalties and dividend.
Furthermore, the ringgit has depreciated by 11.3 percent against the
dollar from 3.77 ringgit
to a dollar last June to 4.25 on Wednesday.
This has forced Najib, who is also the finance minister, to revise the budget on Thursday based on an assumption of average crude oil prices being between $30 and $35 per barrel.
However, in a speech that was broadcast live, he stressed that although the government's revenue is expected to fall by 7 to 9 billion ringgit compared to when oil prices were estimated at $48 per barrel, "the nation is neither in economic nor technical recession."
"The domestic economy continues to remain strong and resilient, capable of facing global economic uncertainties," he said.
The 2016 GDP is set to grow by up to 4.5 percent, he announced, a touch lower than the 2015 GDP growth, which is expected to stand at 5.0 percent.
Tengku Zafrul Aziz, the chief executive of CIMB Group, the country's second biggest lender, said the revised growth forecast of 4.0 to 4.5 percent "is more realistic."
"We expect the medium to longer term outlook for the economy to remain positive. The assurance given by Prime Minister Najib that the economy is not entering into a recession, and there will be no capital controls or ringgit re-pegging, will remove some policy uncertainties and will help us chart our business plans better," he said.
To cushion the impact of a slowdown, Najib unveiled a slew of measures.
Most notably, to put more spending money in the pockets of salaried workers, he cut their compulsory contribution to a pension fund by 3.0 percent from this March to December 2017. Taxpayers will also get an additional 2,000 ringgit tax relief.
To boost tourism from
the government is offering visa-free stay of up to 15 days.
Meanwhile, the government will tighten its belt, although Najib assured the country's one million civil servants that there will be no salary cuts or retrenchment -- instead they will continue to get their annual increment.
There are scant details as to how the government will cut costs, but Najib said the "prudent measures are expected to save 9 billion ringgit in operating and development expenditure."
Some big-ticket projects like the high-speed railway linking Peninsula Malaysia and
and a mass rapid transit railway line in
Greater Kuala Lumpur
will continue, he said.
With the additional measures, Najib projected fiscal deficit to be maintained at 3.1 percent of the 2016 GDP, slightly lower than 2015's 3.2 percent.
The economic headwind is the biggest headache for Najib right now, as he appears to have cleared another political hurdle that threatened his leadership.
Najib is fighting to hold on to his job amid a protracted corruption scandal that erupted last July following disclosure that nearly $700 million from dubious sources was found in his bank accounts.
Although the Attorney-General has cleared him of any wrongdoing, saying on Tuesday the massive sum was a "personal donation" from the Saudi royal family, there was general skepticism, especially when the anticorruption agency that has been probing the case appeared to be challenging the decision by insisting on an independent oversight panel to review it.
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