Real GDP Target Lowered to 4.5-5.5% Per Annum for 2016-2020

In the Mid-Term Review of the Eleventh Malaysia Plan (11MP), the Government lowered its real GDP growth target to 4.5-5.5% per annum from 2016 to 2020 compared to its previous target of 5.0-6.0% per annum. This implies that real GDP growth, which grew by 4.2% yoy in 2016 and 5.9% in 2017, is projected to grow at an average rate of 5.0% in the remaining years of the plan period, from 2018 to 2020.

Setting the Revised Macro Multidimensional Goals to Support Growth

For the remaining years under the 11MP (2018-2020), we believe Malaysia’s economic growth can be sustained and supported by productivity improvement and sustained domestic demand, if the new strategies through revised macro multidimensional goals are executed effectively. These goals are: i) to drive productivity at the national, sector and enterprise levels to ensure sustainable and inclusive growth; ii) to promote quality investment to spearhead economic growth; iii) to embark on initiatives to move up the value chain; iv) to strengthen exports and managing imports to improve the balance of payments; and v) to put emphasis on fiscal consolidation path to ensure sustainability in the medium-term.

Real GDP Growth Target for 11MP Can be Achieved

If the strategies for growth are implemented successfully, with policy clarity and consistency, we believe Malaysia’s real GDP will likely be sustained at around 5% or possibly higher from 2018 to 2020, which was in line with our earlier expectations, and the 4.2% GDP growth recorded in 2016 will likely be the lowest annual rate of growth in the 11MP period (2016-2020).

Lower Development Expenditure of RM220bn for 11MP Period

Based on the new development expenditure figures reported in the mid-term review of 11MP, the Government cut its development expenditure by RM40bn from its original plan target of RM260bn to RM220bn, which will translate to an average spending of RM44bn per annum vs. RM52bn p.a. in the original plan. During the review period, RM92bn was allocated for development expenditure, while only RM86.9bn was actually disbursed compared to the overall allocation under the 11MP at RM260bn, reflecting an allocation of RM104bn for the two-year period (2016-2017). Considering that, the Government will allocate another RM133.1bn for the 2018-2020 period, equivalent to RM44.4bn a year.

Fiscal Discipline Will Remain Government’s Priority

Measures will be taken to strengthen the Government’s medium-term fiscal position, among other by strengthening the management of public debt and accelerating institutional reforms. However, Government noted that the fiscal targets will be flexible to shore up growth, where the fiscal deficit is expected to be beyond the initial fiscal target set by the prior Government before reverting to the fiscal consolidation path. Thus, the Government is revising and aiming it to be higher at 3% of GDP by 2020 (as against a balanced budget deficit at 0.6% of GDP forecasted in the original plan).

Current Account Balance Target Lowered But to Remain in Surplus

Malaysia’s current account balance of payments is expected to remain in surplus and meet its revised target of RM39.9bn in 2020 (2.5% of GNI). This compared to the original target of RM46.5bn or 2.6% of GNI. Current account surplus widened to RM40.3bn (3.1% of GNI) in 2017 from RM29.9bn (2.5% of GNI) in 2016.

Source: Affin Hwang Research - 19 Oct 2018