KUALA LUMPUR: Malaysia will find it challenging to meet its 3% fiscal deficit target for next year due to uncertainties around the US-China trade war, Finance Minister Lim Guan Eng told Reuters in an interview on Monday.
Malaysia’s economy, third-largest in Southeast Asia, is dealing with a debt pile of over RM1 trillion, which the administration of Prime Minister Tun Dr Mahathir Mohamad has blamed on mismanagement by the previous government.
Malaysia is also struggling with slowing economic growth, hurt largely by a global slowdown and the trade war between the United States and China – two of its biggest trading partners.
Guan Eng said while Malaysia can meet this year’s fiscal deficit target of 3.4%, next year’s target of 3% would be harder to meet.
“That will be challenging. Because (of) the uncertainties brought about by the trade war,“ Lim said.
“There’s a time lag effect. The full brunt of it, everyone expects it to hit next year.”
Lim said he was “cautiously confident” about meeting the government’s full-year growth forecast of 4.3% to 4.8%.
Bank Negara in May warned that weakening global demand and the US-China trade war are raising risks for Malaysia. It cut interest rates by 25 basis points, Malaysia’s first since July 2016, amid the growth concerns.
China outreach
Despite the impact on the economy, Guan Eng said Malaysia could benefit from trade diversion from the trade war.
“In the short term, we expect to gain some benefits in the form of business relocation, trade and investment diversion. We are seeing numbers pointing to that,“ Lim said.
“But in the long term, everyone is a loser. There are no winners.”
Guan Eng, who met with Chinese officials on his visit to Beijing earlier this month, said China offered more infrastructure investments under the Belt and Road initiative.
“If the pricing is right, we will consider it,“ he said.
Malaysia will send an investment mission next month to Shenzhen in a bid to attract technology and other companies who might be looking to move their supply chains in light of the trade war, the minister said.
Malaysia will also consider selling panda bonds in China and another tranche of Japanese samurai bonds to raise funds if the pricing is attractive, he said.
Mahathir, who came to power after a stunning election victory last May, had vowed to renegotiate or cancel what he calls unfair Chinese projects authorised by his predecessor.
In April, Malaysia and China agreed to resume construction of a multi-billion dollar rail project after negotiating the cost down by nearly a third.
Lim also said Malaysia and China were in discussions to establish a link between the Shenzhen and Kuala Lumpur stock exchanges, he said.
“This is linking ... both in terms of products and infrastructure,“ he said, adding that it could be finalised in the next six months. — Reuters
