Malaysia sees current account surplus halved in 2016, but lower fiscal deficit

[KUALA LUMPUR] Malaysia forecast on Friday that its current account surplus would be more than halved to 11.3 billion ringgit (S$3.65 billion) in 2016, extending a negative trend that has been a key factor behind the ringgit's 17 per cent fall this year.

The forecast contained in the government's annual economic report was released just ahead of Prime Minister Najib Razak's announcement of the 2016 budget.

More positively, the report predicted economic growth of 4.0 to 5.0 per cent next year - barely changed from the 4.5-5.0 per cent forecast for this year - and a lower budget deficit, which would support Malaysia's investment grade rating for its sovereign debt.

The report said that with help of revenues from a consumption tax introduced in April, the fiscal deficit would be reduced from 3.4 per cent of gross domestic product last year, to 3.2 per cent in 2015 and 3.1 per cent in 2016.

Malaysia, a major Southeast Asian producer of oil and gas, has been hit hard by the collapse in global crude prices since mid-2014. An economic slowdown in China - its biggest trading partner - and subdued exports markets elsewhere, have exacerbated problems.

As a result, the current account surplus was forecast to shrink from 47.3 billion ringgit in 2014 to 23.4 billion ringgit this year, and narrow again in 2016.

Exports are expected to rebound by 1.4 per cent in 2016 from a 0.7 per cent drop this year, led by higher demand for manufactured exports especially electrical and electronic products.

While Malaysia's external balances have worsened the ringgit currency has fallen to its lowest levels in 17 years. "Amid a challenging global environment, Budget 2016, the first budget under the 11th Malaysia Plan, will thus emphasise measures to further strenghten economic resilience as well as improve the well-being of the people," Najib said in a preface to the report.

Inflation is expected to edge up to between 2.0 and 3.0 per cent next year from between 2.0 and 2.5 per cent in 2015.

Najib, who is also the finance minister, said the government will continue to balance growth momentum and reform initiatives while ensuring public finances remain sound.

Under fire over allegations of corruption at indebted state fund 1Malaysia Development Bhd, Najib is expected to use the budget to counter criticism of his leadership and anger over rising living costs by boosting handouts to the less well off.

The government expects to stay within its self-imposed debt limit of 55 per cent of GDP next year, forecasting a ratio of 54.0 per cent this year, slightly higher than 52.7 per cent a year ago, mainly due to higher domestic debt issuance to meet deficit financing needs.

Oil and gas related revenues are expected to total 14.1 per cent of total revenue in 2016, down from 19.7 per cent in 2015.

The new goods and services tax, however, is expected to raise 39 billion in 2016, as against 27 billion ringgit in the first eight months of 2015.

And spending on subsidies is seen falling slightly to 26.1 billion ringgit, slightly below this year's 26.2 billion ringgit.

REUTERS