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Budget to invigorate economy

KUALA LUMPUR, Oct 19 (Bernama) -- The 2017 Budget will continue to invigorate Malaysia's economy even if it is deemed to be the most challenging for Prime Minister Datuk Seri Najib Tun Razak.

This is in view of Malaysia's vulnerability to uncertainty in the global economy, with growth of four per cent in the second quarter this year representing its slowest pace of expansion since the third quarter of 2009, which was at the peak of the then global financial crisis.

Najib has indicated that the government has to be creative in overcoming the constraints to continue support the people's well-being and provide as much assistance as possible in the budget.

Thus, the people's concerns will be duly addressed

Govt finances

The government will have to manage its finances prudently in terms of debt and fiscal deficit on expectations of lower dividend payment from Petroleum Nasional Bhd next year and lower tax collections.

It is also committed to reduce the budget deficit to 3.1 per cent of the gross domestic product (GDP) this year, as outlined in the recalibrated budget presented by Najib in January when crude oil price was US$30 (US$1 = RM4.18) per barrel.

With oil price at US$51 per barrel level now, it will provide the government with more capacity to boost budget spending but it has to be prudent as finances remained constrained due to the slowing economy.

MIDF Research, in its report, is optimistic the 3.1 per cent deficit target can be achieved with all the measures taken by the government to rein in its expenditures and prioritise development projects.

The downside risk is that global trade and economy remain weak which presents strong headwinds to Malaysia's economy.

Economic growth

With the global economy remaining weak, there is also further pressure in terms of exports and current account which will weigh on Malaysia's economy and government measures to further roll-out its development spending.

Malaysia's growth is expected at four-4.5 per cent this year from five per cent last year in line with global challenges like, among others, subdued trade and economic numbers in China, weak US jobs market, still fragile economic state of the Eurozone and impact of UK's vote to leave the economic bloc.

Growing expectations of an increase in US interest rates soon will also exacerbate capital outflow risks.

HSBC Global Research, in its report on Asian economies, said capital outflow risks have also become all the more pertinent because the current account surplus has narrowed significantly than it expected so far this year.

With fiscal constraint, the budget, which will be tabled on Oct 21, is likely to contain more or less the same limited measures for low- and middle-income earners as the 2016 budget.

Spending allocation

However, the still fragile global economic environment will compel the government to expand allocations to spur domestic demand and consumer spending.

Sunway University Business School's Professor of Economics, Dr Yeah Kim Leng, said fiscal constraints will see the need to prioritise spending on important core areas that will sustain social security and generate business growth as well as employment.

"With the limit on spending, there is a need to defer projects that would not have an immediate impact on the economy," Yeah told Bernama.

To maximise impact on spending, he said, the government should embark on public-private partnership projects.

Yeah also proposed tax relief, or tax cut, for the middle 40 per cent household (M40 group) to address the rising costs of living.

The allocations for housing, education, healthcare and training, he said, were of paramount importance to support the households of the bottom 40 per cent or the B40 group.

The M40 category consists of those whose salaries are between RM3,860 and RM8,319 per month while the B40 category refers to whose salaries are from RM3,855 and below.

He said the expected 4-4.5 per cent economic expansion this year will still provide a modest growth of about three to four per cent in government's revenue.

Next year's revenue will be bolstered by the improved outlook in the global economy, he said.

Yeah said there is a need for incentives to boost economic growth and maintain investor confidence.

It was reported that the government's plans to raise funds through the auction of telecommunication spectrum could also boost national coffers.

Focus on SMEs

Meanwhile, Chief Operating Officer of online payroll software, PayrollPanda.my, Toine Vaessen, hoped the budget will focus on assisting small and medium enterprises (SMEs), given their growing contributions to boost the economy.

"SMEs are the pulse of the economy, employing over 65 per cent of the entire Malaysian workforce and accounting for 36.3 per cent of overall GDP," he told Bernama.

He said many SME decision-makers, in a recent company survey on the state ofthe Malaysian economy, said that digital economy would provide opportunities for them.

"Hence, they would like to see the budget focus on assisting SMEs with this digital transformation in terms of infrastructure, investment, training, tax incentives and other government initiatives.

"Given the present weak economy, the fact that SMEs are still positive about Malaysia's long-term prospects show that the owners believe we are going through a rough patch before better times return," he said.

Vaessen said the strong fundamentals -- stability, diversity and vitality -- of the Malaysian economy were still in place.

"The GDP growth is currently hitting the low fours, and SME decision-makers expect us to get back to sixes in coming years," he said.

Budget expectations

The 2017 Budget is also expected to build up the momentum of the annual progress in order to achieve medium-term goals set under the 11th Malaysia Plan.

It is also anticipated to target the B40 and M40 groups, with the government continuing to support their welfare through the 1Malaysia People's Aid (BR1M) handouts and addressing concerns on affordable housing.

RHB Research, in a note, said it envisaged an increase in allocation to stimulate consumer spending.

It believes that the government is slated to announce a budget spending that will likely be marginally higher for 2017 compared to that in 2016.

It said to further boost home ownership, the government may relax loan assessment methods, allow an in increase in withdrawal under the Employees Provident Fund's Account 2 and may introduce more 1Malaysia People's Housing schemes.

People's concerns

There are also concerns on low wages and the budget cut in education last year.

According to Khazanah Research Institute (KRI), low wages and youth unemployment are of concern, with food prices rising faster than overall inflation.

Based on the findings of KRI's state of Households II report on the developments of household well-being between 2012 and 2014, Malaysian household income growth did not seem to be driven by an accompanying expansion in salaries and wages.

Between 2012 and 2014, average income of households grew at a compound annual growth rate (CAGR) of 10.8 per cent and 12.4 per cent respectively but nominal salaries and wages grew at a much slower pace of 3.3 per cent.

The median wage in Malaysia in 2015, based on recent statistics, is only RM1,600 per month.

It pointed that household finances remained to be under pressure with the ratio of household debt to GDP at 89.1 per cent in 2015, with most household debt undertaken to finance house purchases.

The KRI report pointed that skilled jobs paid much better with Malaysian firms consistently reported difficulties in sourcing for talents.

A push in country's economic agenda

The World Bank has stated the need for structural reforms in the Malaysian economy, mainly in human capital, liberalisation and competitiveness, which are in line with the nation's aspirations to move towards a high-income country.

Hence, Malaysia should not rest on its laurels and look at concerns raised following the World Economic Forum 2016-2017 report recently, which indicated a fall in its global competitiveness ranking to the 25th from 18th last year.

There is still a need to look at areas that need further attention and improvements in order to boost confidence among investors, including the importance of good governance to prevent any potential slippages and leakages in government's finances and budget.

The total allocation for the 2016 Budget was RM267.2 billion, of which RM215.2 billion was for operating expenditure, RM50 billion for development expenditure and the remaining RM2 billion for contingency reserves.

The recalibrated budget, meanwhile, had outlined 11 restructured measures to ensure that the economy and finances remained on the right trajectory.

On development expenditure, the focus would be on projects and programmes with high multiplier effects, low import contents and on the people's well-being.

The projects that will be prioritised include construction of affordable houses, hospitals, schools, roads and public transport as well as security while other projects under study will be rescheduled.

These measures are expected to reduce cash commitment of up to RM5 billion.

RHB Research estimated an allocation of RM45 billion in gross development expenditure for 2017, lower than the 11th Malaysian Plan projections but still significantly higher from an estimate of RM40 billion in 2016.

"The increase in gross development expenditure will likely benefit the construction industry in general and cushion the impact from the goods and services tax implementation and slower capital expenditure by businesses under a low oil price and weak ringgit environment," it said.

Among infrastructure projects planned or are being implemented include the Kuala Lumpur-Singapore high-speed rail project (RM34.8 billion), Klang Valley Mass Rapid Transit (MRT2) and Light Rail Transit 3 (LRT3) projects (RM36 billion and RM9 billion respectively), 197km of rail tracks from Gemas to Johor Bahru, the Pan Borneo highway in Sarawak and the planned introduction of thousands of kilometres of new roads in rural areas.

"However, some of these infrastructure projects, such as MRT and LRT projects, are undertaken via off-balance sheet financing," RHB Research said.

Thus, in essence, the 2017 Budget will strive to win the people's hearts amid vulnerability to external headwinds, echoing quotes from US President Abraham Lincoln, "that even the humblest man has an equal opportunity to gain wealth".

The 2017 Budget will definitely spur the country and economy to move ahead with much vigour and energy.

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