KUALA LUMPUR, Oct 25 — Malaysia expects to meet its target of a lower budget deficit next year helped by stronger economic growth and improved tax collection, according to the government’s annual economic report.

The report for 2013/14, released just ahead of Prime Minister Datuk Seri Najib Razak’s announcement of the 2014 budget, retained the government’s forecast of a steadily falling budget gap, from 4.5 per cent in 2012 to 4.0 per cent in 2013 and 3.5 per cent in 2014.

Najib is under pressure in today’s budget speech to parliament to rein in spending and boost tax collection to tackle Malaysia’s high budget deficit and fast-growing debt pile. In July, ratings agency Fitch cut its outlook on Malaysia’s sovereign debt to negative, citing gloomier prospects for reforms in the wake of the ruling coalition’s weak election result in May.

Najib is expected to trim the government’s hefty subsidy bill and announce a new consumption tax as he delivers a budget seen as crucial to ward off a possible credit downgrade.

“The government will continue to consolidate its fiscal position in a firm but measured way to ensure growth momentum is not undermined,” the report said.

The report forecast a slight pick-up in GDP growth to 5.0 to 5.5 per cent in 2014 from 4.5 to 5.0 per cent in 2013, underpinned by strong domestic demand.

The government expects to narrowly stay within its self-imposed debt limit of 55 per cent of GDP next year, forecasting a ratio of 54.7 per cent.

The current account surplus, which shrank sharply this year due to weak exports and strong imports, is projected to fall further to RM23.9 billion in 2014 from RM26.6 billion in 2013. In 2012, it stood at RM57.3 billion.

Exports are expected to rise 2.5 per cent in 2014 after a 0.4 per cent drop the preceding year.

Inflation is expected to nudge higher but to remain “manageable” between 2.0 to 3.0 per cent next year.

The report said that spending on subsidies, including fuel, would total RM39.3 billion next year, up slightly from RM37.7 billion in 2013.

In his preface to the report, Najib said subsidy rationalisation would be carried out gradually, along with “complementary measures to assist vulnerable groups.”

“We plan to introduce a comprehensive social safety net, which is targeted to be implemented in 2015,” he said, giving no further details. — Reuters