KUALA LUMPUR, March 14 — The federal government is set to ramp up spending ahead of the general elections, but will likely demonstrate the financial discipline needed to meet its deficit reduction targets, BMI Research said today.
The Fitch Group unit predicted that the Barisan Nasional (BN) government will also rein in spending once the general election is concluded, in order to increase its chances of reducing its chronic overspending by the determined amount.
Among increased expenditure items include the annual 1Malaysia People’s Aid (BR1M) cash handouts as well as special one-off payments to village chiefs, heads of Bumiputra groups, religious teachers, Islamic preachers, and civil servants worth about RM1.7 billion.
BMI Research also highlighted the increased infrastructure spending in the fourth quarter of 2017 that rose 18.4 per cent year-on-year, which it said was aimed at generating voter support.
“Despite the uptick in spending ahead of Malaysia’s general elections that must be held by August 2018, we maintain our forecast for the government’s fiscal deficit in 2018 to come in at 2.8 per cent of GDP as higher oil prices and stronger growth are likely to provide support to revenues.
“In addition, we believe that the government will cut back on spending in H218 to remain on the path of fiscal consolidation in order to maintain the attractiveness of Malaysia as an investment destination.”
BMI Research added that Putrajaya’s plan to cut the national deficit will be further aided by the projected gross domestic product growth of 5.5 per cent this year.
Improved business environment and performance will likely result in higher corporate tax collections while the continued implementation of the Goods and Services Tax (GST) will also contribute, it added.
The 14th general election must be called on or before June 24, failing which Parliament will automatically be disbanded and polls held within 60 days of the dissolution.
Speculation is rife, however, that Prime Minister Datuk Seri Najib Razak will seek the Yang diPertuan Agong’s consent to dissolve Parliament early and for the general election to be held in April or early May.