The World Bank says Malaysia’s economy has to grow above 5% in order to achieve the fiscal deficit target of 2.8% of the GDP

by SHAHEERA AZNAM SHAH / pic by ISMAIL CHE RUS

Malaysia’s economic growth is expected to ease to 4.9% this year, reflecting a moderate export projection and lower public and private sectors’ investment, the World Bank Group estimated.

Its East Asia and Pacific region chief economist Sudhir Shetty said the slower growth is likely to drag until 2020 due to several halted infrastructure projects.

“Malaysia is one of the economies in the Asean region that will certainly grow slower than expected compared to six months ago.

“The cancellations of some large infrastructure projects do have an effect to it (GDP) besides Malaysia’s economy which is very outward-oriented.

“The reassessment of the several planned large infrastructure projects increases the uncertainty on the outlook for investment and growth,” he said at the World Bank’s East Asia and Pacific Economic Update in Kuala Lumpur yesterday.

In the first three months of 2018, Malaysia’s economy expanded 5.4% before it slowed to 4.5% in its second quarter of this year (2Q18).

Malaysia posted a stunning GDP growth of 5.9% last year, largely driven by public investment and government infrastructure spending. However, the new government had decided to shelve or delay key projects worth billions of ringgit as Putrajaya sought to trim its debts.

The World Bank expects the 2Q18 to be quite strong as it will be supported by the higher public consumption.

“The outlook for the household spending primarily reflects the three-month tax holiday following the zero-rating of the Goods and Services Tax and one-off payouts to civil servants and pensioners,” it said.

The World Bank lead economist Richard Record said the implementation of the Sales and Services Tax (SST) and the present uncertainty of its final stage will generate a short-term impact to the country’s revenue. “SST will definitely pose a short-term impact to the country’s revenue as there are still ongoing processes in determining the coverage.

“For the government, it is important to see a broader context of public and private investments, and perhaps to look at other forms of revenue beyond the tax to ensure sustainability,” he said.

According to the World Bank’s report, the gross fixed capital formation is expected to expand modestly with lower than expected public capital expenditure, which will dampen the growth prospects.

“The country’s external sector will continue to benefit from the rebound in global investment and manufacturing activities despite nearing to the mature level,” it said.

In addition, the World Bank said Malaysia’s economy has to grow above 5% in order to achieve the fiscal deficit target of 2.8% of the GDP.

“Otherwise, the government may elect to run a slightly larger fiscal deficit,” it said.

Meanwhile, the World Bank noted that Malaysia is expected to achieve a high-income country status between 2020 and 2024, in line with the declining measured poverty rate.

“Using the World Bank’s upper-middle income poverty line of US$5.50 (RM22.83)/day, the poverty headcount ratio is projected to decline to 1.2% by 2020.

“A newly introduced Cost of Living Aid cash transfer programme is being reviewed as the goal is to provide more effective social welfare assistance to the targeted lower-income household,” it said.

World Bank senior economist Dr Kenneth Simler said the rapidly rising prices across commodities, which are currently surpassing the inflation rate, remain a bigger concern.