Malaysia Ringgit/Bloomberg

Economy

Malaysia pledges not to raise tax even as trade war halts fiscal plan

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The government widened its deficit target for 2020 to 3.2 per cent of gross domestic product, from a previous target of three per cent, to get the fiscal space it needs to support economic growth.

Monday 14, October 2019

Malaysia’s finance minister said that the government will not raise taxes unnecessarily even as the trade war between two of its largest trading partners hampers the country’s goal of achieving a balanced budget, reported Bloomberg.

Lim Guan Eng, the Malaysian Finance Minister said that the government will spend within its means and will not add taxes just to fund certain infrastructure projects.

However, the Malaysian government plans to raise funds through a samurai bond issuance early next year as well as continue its pursuit of assets lost in the 1MDB state investment fund scandal.

The government remains committed to reducing the fiscal deficit in the medium term and could reach a balanced budget in five years if trade tensions between the US and China are resolved, said Lim.

The finance minister announced larger development spending for next year and offered a slew of incentives to win over investors amid the trade war, which he described as a unique opportunity for Malaysia to attract investment.

Malaysia expects foreign direct investment from China to reach levels of investment from the US and Europe in coming years.

Soon after Prime Minister Mahathir Mohamad returned to power last year, Malaysia halted or cancelled major projects and slashed spending to rein in debt. That tone has changed since Lim said in February 2019 that he was nearly done cleaning house.

The government raised next year’s transport allocation by 8.8 per cent to fund a Kuala Lumpur mass rapid transit project and the Pan-Borneo Highway while allocating MYR 10 billion ($2.4 billion) to help Malaysians buy homes.

Malaysia will raise funds by selling yen-denominated bonds in the first quarter of next year, with the size to be determined after talks with Japan, Lim said. The government raised JPY 200 billion ($1.85 billion) this year at a coupon of 0.53 per cent, lower than the 0.65 per cent he indicated before the sale.

Additionally, Mahathir has made it a mission to bring back money believed to be lost through 1MDB. Lim reiterated that he wants Goldman Sachs Group to make reparation payments amounting to $7.5 billion for the bank’s role in arranging bond sales for the troubled state fund.

TAGS : fiscal plan, Goldman Sachs Group, 1MDB, Prime Minister Mahathir Mohamad, US-China Trade war, Samurai bonds

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