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Malaysia trims growth expectations as burden shifts to consumers
[KUALA LUMPUR] Malaysia trimmed its growth expectations for 2016 after a decline in oil prices crimped the outlook for exports and government revenue. Prime Minister Najib Razak is counting on consumers to hold up the economy, finding ways to put more money in their pockets.
The government will reduce mandatory employee contribution rates to the national pension fund by 3 percentage points in a move that could boost private spending by RM8 billion (US$1.9 billion) a year, Najib said in a speech Thursday. The economy will expand 4 per cent to 4.5 per cent this year, compared with an earlier projection of as much as 5 per cent, he said.
The government is sticking to its budget deficit target of 3.1 per cent of gross domestic product for 2016, Najib said, adding he was confident the economy grew 5 per cent last year and the fiscal shortfall was 3.2 per cent of gross domestic product.
"Prudent measures" by the government will save RM9 billion in operating and development expenditure, he said, without elaborating on steps that would be taken to achieve those savings.
A plunge in crude is forcing Najib to reassess spending plans for a second year to keep fiscal deficit targets in check and avoid a credit rating downgrade.
Malaysia, as Asia's only major net oil exporter, risks losing 300 million ringgit for every $1 per barrel drop, according to government estimates. The government is now assuming Brent at $30 to $35 a barrel in 2016, compared with $48 when the expenditure plans were first tabled in October.
The ringgit gained 0.7 per cent to 4.2253 a dollar in Kuala Lumpur Thursday. The Malaysian currency has strengthened about 1.6 per cent against the greenback this year, after tumbling more than 18 per cent in 2015.