[KUALA LUMPUR] Malaysia trimmed its 2015 growth forecast on Tuesday and said the fiscal deficit would be bigger than expected after the sharp fall in oil prices hit the petroleum-exporting nation's economic plans.
Prime Minister Najib Razak called the situation a "reality check" but assured Malaysians the country was not in trouble, unveiling measures he said would keep the economy moving forward.
"We are not in crisis. Indeed, we are taking pre-emptive measures following the changes in the external global economic landscape which are beyond our control," Mr Najib said in a nationally televised address.
He said the government had cut its economic growth estimate to a 4.5-5.5 per cent range, from an earlier projection of up to 6 per cent.
The target for reducing the fiscal deficit was also tempered to 3.2 per cent of GDP, from an earlier 3.0 per cent target stated in a 2015 budget tabled three months ago.
Malaysia derives 30 per cent of state income from energy exports, and the more than 50 per cent drop in world oil prices has dragged the ringgit currency to around six-year lows and rattled investors.
The stock market has stumbled and business confidence has slid, according to surveys. Pressure had been growing on Mr Najib to address the growing unease.
Many consumers complain of increasing difficulty making ends meet, particularly after a range of subsidies were lifted recently on key goods, and with the introduction of a six per cent consumption tax looming on April 1.
Mr Najib announced steps to promote trade, tourism, investment, and domestic consumption while also reducing business costs. He said hundreds of millions of dollars would be allocated for recovery efforts in parts of the north devastated by floods that began late last month.
Mr Najib said government spending would be trimmed, but not the RM48.5 billion (US$13.4 billion) budgeted for development spending including a series of large infrastructure projects considered crucial to keeping the economy humming.
The World Bank recently shaved its GDP growth forecast for Malaysia to 4.7 per cent from an earlier 4.9 per cent, still enviable but off the historic pace for the Southeast Asian "tiger" economy.
Several analysts said Malaysia should weather the storm because, with a thriving manufacturing sector, it is less dependent on energy than some other countries like Russia.
They say the ringgit and overall economic outlook should stabilise once oil prices become steadier.
"These new budget measures have been long-awaited. It should allay fears over the health of the economy," said Manokaran Mottain, chief economist for AllianceDBS Research.
But Fitch Ratings agency warned it was likely to downgrade Malaysia's sovereign credit rating this year - which could make it harder to raise needed funds on capital markets - citing its dependence on commodity exports.
Mr Najib, however, said the depressed ringgit would make Malaysian exports more competitive, and an improving economic picture in key export markets like the United States would help.
State energy firm Petronas provides about 30 per cent of Malaysian government revenue, pumping in RM68 billion in 2014.
But it warned late last year it could slash its contribution by as much as 37 per cent in 2015 due to the oil rout.
The uncertainty caused two of Malaysia's leading financial institutions - CIMB and RHB Capital - to last week call off a planned merger that would have created the country's largest bank by assets.