LACK of clarity on the policy direction of Prime Minister’s Dr Mahathir Mohamad’s government is likely to cloud the economic outlook for Malaysia, Bloomberg reports.

Data showed that economic growth for the first quarter of this year is expected to be at a strong 5.6%, but the numbers for the rest of the year will depend on the policies rolled out by Dr Mahathir.

Bank Negara expects growth this year to be between 6% and 5.5%, while economist forecast it lower at 5.4%.  

Four policies areas that will have an impact on the economy have been identified.

First, is the goods and services tax (GST). Oxford Economics has estimated that scrapping GST and carrying out other populist spending measures may give a boost to gross domestic product of 0.2% to 0.4%. Voters had blamed the tax for rising costs of living, and removing it may lower prices and ease inflation, supporting strong consumer spending.

Second, is how the government will make up for the revenue short fall resulting from zero-rating GST and reduce the fiscal deficit. Last year’s deficit was reduced to 3%,  Oxford Economics expects that to widen to 3.3% from 2018 to 2019 over a baseline of 2.8%.  The government might have to cut spending to control debt and avoid a credit rating downgrade, but that risks slowing down economic growth.  

Third, is how the new PH government intends to proceed with its review of foreign backed mega infrastructure projects. One chief concern is the RM55 billion East Coast Rail Link.

Fourth, is effect global crude oil price on Malaysia’s economy. Malaysia is the only top Asian trading nation that is a net exporter of oil, and rising crude prices will benefit it. The government earns 15% of its revenue from the oil sector. – May 17, 2018.