KUALA LUMPUR, Sept 12 — The Pakatan Harapan (PH) government could forego its deficit reduction target for 2020 and increase spending in an attempt to shore up the Malaysian economy against fallout from the US-China trade war, government sources have said.

They told The Straits Times that the Finance Ministry was gathering views on this as part of its preparation for a "pragmatic” Budget 2020 that must also contend with low prevailing oil prices globally.

"It will be higher,” one government source told The ST, in reference to the federal deficit.

"The question is how much, but it will be close to this year’s 3.4 per cent.” 

In June, Finance Minister Lim Guan Eng had said the government was embarking on a fiscal consolidation plan to gradually trim the federal deficit to 3.0 per cent as a ratio of the economy in 2020, down from the targeted 3.4 per cent for this year.

However, Lim qualified that the government’s confidence in achieving this target hinged on a de-escalation of the US-China trade war, which has since worsened.

The PH government repeatedly announced that Malaysia’s debt was over RM1.1 trillion, a figure that global ratings firms have not adopted as it differed from conventions used in sovereign debt accounting.

The ST also cited Kenanga Investment’s chief economist Wan Suhaimie Saidie as noting that government revenue may come under pressure as global oil price is forecast to be US$60 per barrel next year while Malaysia is targeting this to be US$70.

Putrajaya derives a significant portion of federal revenue from state oil firm Petronas.

Prime Minister Tun Dr Mahathir Mohamad said in June that he would continue to focus on reducing the country’s debts before stepping down from office.

Dr Mahathir reportedly said the country’s debt was too high and must be reduced, adding that PH underestimated the severity of the financial burden built up by the previous administration.