November 2, 2018 / 8:00 AM / 16 days ago

Malaysia's new government sets bigger budget, cuts fiscal targets

KUALA LUMPUR, Nov 2 (Reuters) - Malaysia announced an expanded budget for 2019 and forecast a wider fiscal deficit as Prime Minister Mahathir Mohamad’s new administration tussles with shrinking revenue and a large debt left by the previous administration.

The new government is resetting “its fiscal consolidation path starting from 2019 to account for narrow revenue base, additional provision for off-budget items and tax refunds,” it said in a fiscal outlook report released on Friday alongside the presentation of next year’s budget.

Malaysia has budgeted 314.6 billion ringgit ($75.53 billion) for government expenditure in 2019, up 8.3 percent from this year’s revised budget of 290.4 billion ringgit, according to the report.

Total revenue is projected to rise to 261.8 billion ringgit next year, up from 236.5 billion ringgit from 2018.

The government said it has decided to settle outstanding tax refunds of around 37 billion ringgit, much of which will be funded by a one-off special dividend of 30 billion ringgit from state energy firm Petronas.

The oil and gas company will also pay a regular annual dividend of 24 billion ringgit, according to the report.

The fiscal deficit, which is closely tracked by ratings firms, is expected to hit 3.4 percent of gross domestic product in 2019. The deficit will come in at 3.7 percent for this year, higher than an earlier forecast of 2.8 percent, the government said.

It is undertaking a more rigorous expenditure optimisation exercise, the report said, adding that a tax reform committee has been set up to review tax incentives and explore new sources of revenue.

Friday’s budget announcement is the first by Mahathir’s government since Malaysians ended former leader Najib Razak’s near decade long rule at a general election in May.

Analysts had widely predicted cuts to public spending, especially after Mahathir in October announced plans to reduce development spending and blamed Najib’s administration for saddling the country with debt of more than 1 trillion ringgit.

Revenue collection had also taken a hit after the new government scrapped a six percent consumption tax and reintroduced fuel subsidies earlier this year.

In an economic report released on Friday, Malaysia said it will cut public spending sharply despite foreseeing the economy growing more slowly. ($1 = 4.1650 ringgit) (Reporting by Joseph Sipalan, Rozanna Latiff, Liz Lee, Emily Chow; Editing by A. Ananthalakshmi and Simon Cameron-Moore)

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