KUALA LUMPUR (Reuters) – Malaysia is “cautiously optimistic” it would win the confidence of investors and ratings agencies for its 2020 budget, its finance minister said on Saturday, as the government prioritized boosting growth over reducing the deficit in the short term.
Lim Guan Eng told reporters that given the global economic uncertainties, the country needed to “not only convince but reassure investors” that the Southeast Asian nation will be back on track for fiscal consolidation in 2021.
Malaysia’s government unveiled on Friday a smaller budget than expected for next year but flagged a wider budget deficit than earlier estimated, and said it would step in with stimulus measures should global demand worsen.
The government projected a fiscal deficit of 3.2% of gross domestic product (GDP), larger than an initial target of 3% but lower than this year’s 3.4%.
“So far the response by both the World Bank and even Moody’s have been positive so we are cautiously optimistic that we will be able to convince not just foreign investors and fund managers but also ratings agencies that this is necessary in order to ensure sustainable economic growth,” Lim said.
World Bank lead economist for Malaysia, Richard Record said in a note overnight that the budget was “a prudent balance between the competing needs for Malaysia to preserve fiscal sustainability, while also responding to the realities of a slowing economic environment”.
Record also said proposals to reform the country’s investment incentives framework was a step in the right direction.
Sovereign risk senior analyst at Moody’s Investors Service, Anushka Shah said in a note late Friday that Malaysia’s fiscal strength will continue to constrain its credit profile but the budget’s emphasis on backing higher-value added industries and on infrastructure development will support growth against a challenging global environment.
Esther Lai, head of sovereign ratings at RAM Ratings, a Malaysian ratings agency said the 3.2% deficit target was within expectations. “It is a pragmatic target as the government is striking a balance between supporting growth and keeping its promise for fiscal consolidation.”