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Government spending, revenue in the midst of the US-China trade war



A man erects a Malaysian flag in front of his shop in Kuala Lumpur.

Jimin Lai | AFP | Getty Images

The Malaysian government will outline its spending plans for next year on Friday – and analysts say the country could spend more than it intended to support the economy in a destructive US-China trade war.

The Southeast The Asian country had a change of government in the last year's elections ̵

1; the first since independence in 1957. The new government, led by Prime Minister Mahathir Mohamad, had set a debt of over $ 1 trillion in debt Ringgit (US $ 238.5 billion) that it was left behind by the previous government.

Uncertainties surrounding the US-China trade war have clouded prospects for Malaysia's economic growth. Weaker growth tends to reduce government revenues while increasing the need for higher public spending to cushion the economic slowdown.

Therefore, it could be difficult for the Malaysian government to reduce the budget deficit – the income shortfall compared to spending – by about 3.4, Reuters said, citing Finance Minister Lim Guan Eng.

Economists agreed that Malaysia could abolish this goal for the time being. Several analysts cited a budget deficit of 3.1% to 3.2% of GDP as the level that allows the government to boost growth without giving up financial discipline in a manner that upsets rating agencies.

The 2020 target makes little sense, as global and domestic growth prospects have deteriorated significantly, "Bank of America analyst Merrill Lynch wrote in a Monday bulletin.

" Despite its resilience to date, the Malaysian foreign sector remains The analysts added that private consumption, which contributed 90% of GDP growth over the past six quarters, is also likely to slow in the coming months.

The Malaysian economy outperformed Expected to grow by around 4.7% in the first half of this year, BofAML expects this figure to slow to below 4.5% by 2019 and to 4% by 2020.

Beneficiaries of trade wars

One area , to which the government should give priority, is the attractiveness of Malaysia for enterprises, which look for something The Diversifizier their supply chains as a result of the ongoing trade war between the US and China, say economists.

The country saw an increase in approved foreign direct investment as the trade war led manufacturers to reconfigure their supply chains according to official figures. According to a report from Citi Research last month, Malaysia's current ability to attract more distractions may be limited.

They estimated that Malaysia's growth could increase if tariffs were raised on all commodities flowing between the US and China Given the current capacity constraints, it was 0.14 percentage points instead of 0.5 percentage points, when there were no restrictions.

"This indicates greater urgency in adding new capacity, especially in machinery and electronics," economists said.

Local firm investment has been declining for years – dampening corporate earnings and hampering economic growth, analysts at Malaysian bank Maybank said. The country has taken several steps to boost domestic investment, including speeding up the licensing process and improving access to public finance for small and medium-sized enterprises.

But more could be done. Analysts said in a report last week that they expect the government to provide investment incentives for sectors that could achieve long-term economic growth – such as electronics, chemicals, engineering and engineering – as well as greater adoption of new technologies by SMEs.

Increasing Government Income

In the past year, many foreign investors have avoided buying Malaysian shares, with some questioning the government's ability to manage its finances. This helped make Malaysian equities one of the worst performers in Asia this year.

The Mahathir government abolished the tax on goods and services introduced by former Prime Minister Najib Razak, which blamed them for the country's higher performance costing their lives. However, many economists and investors saw this as a populist move that has since left a gap in public finances.

According to media reports, Finance Minister Lim is unlikely to introduce new taxes. This means that "the increase in the collection of existing taxes will prevail," the analysts of Citi. This could include raising tax rates for higher income groups and revising tax breaks to better target low and middle income households.


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