Kuala Lumpur – Malaysia has cut its economic growth target for the year and trimmed spending amid a slump in global oil prices that has reduced government revenue and derailed plans to cut the country’s budget deficit to a planned three percent.
“We are not in crisis; we are taking pre-emptive measures following changes in the global economic landscape that are beyond our control,” Prime Minister Najib Razak, who is also finance minister, told a specially convened forum in the administrative capital of Putrajaya.
Compared to a few months ago, the global landscape has changed significantly.
Najib said the drop in global oil prices from around $100 to less than $50 meant it was no longer possible for the government to meet the deficit target that was announced in October last year.
Oil and gas, managed by national oil company Petronas, account for about a fifth of Malaysian exports and a third of government income in the form of dividends, taxes and royalties.
Petronas warned in November that the collapse in the benchmark price of oil would reduce the amount of dividend it would be able to pass on to the government.
“Compared to a few months ago, the global landscape has changed significantly,” Najib said in his address. “This necessitates us to review and clarify some of our earlier macro and fiscal assumptions.”
He said the new measures would mean a deficit at 3.2 percent with the economy expected to expand at between 4.5 percent and 5.5 percent, compared with an October forecast
The government will cut operational expenditure with a series of measures including the suspension of the national service programme, a review of grants to government-linked agencies, postpone purchases of new office equipment and vehicles and curb spending on travel and official functions.
Big-ticket infrastructure projects including a high-speed rail link to Singapore and a highway in Borneo will continue, Najib stressed.
“It’s the right way forward,” said Wan Saiful Wan Jan, founder and chief executive of the Institute for Democracy and Economic Affairs, an independent think-tank.
“It shows the government knows they need to cut down, but we’re still waiting for the details [and] listening to the speech. There are some areas of concern, especially when they say they want to focus on local suppliers,” Wan Jan told Al Jazeera.
In the address, Najib said the government would give priority to local contractors in construction tenders and in rebuilding the areas devastated by floods earlier this month.
With the ringgit among Asia’s worst performing currencies in the past few months, the government will also encourage the purchase of Malaysian-made goods and import-substitution in services including shipping and education.
Malaysia’s announcement came as China revealed its economy expanded at 7.4 percent in 2014, the slowest in more than two decades, and the IMF moved to cut its forecasts for global growth.
The fund is now forecasting global growth of 3.5 percent, compared with a previous estimate of 3.8 percent.