Malaysia sees economic growth holding steady at 5-6 pct in 2015

The peaks of the Petronas Twin Towers is seen in central Kuala Lumpur, on Aug 16, 2014. Malaysia sees economic growth holding steady at 5.0 to 6.0 per cent in 2015, despite expectations that domestic demand will be dampened by reduced fuel subsi
The peaks of the Petronas Twin Towers is seen in central Kuala Lumpur, on Aug 16, 2014. Malaysia sees economic growth holding steady at 5.0 to 6.0 per cent in 2015, despite expectations that domestic demand will be dampened by reduced fuel subsidies and the introduction of a new sales tax. -- PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - Malaysia sees economic growth holding steady at 5.0 to 6.0 per cent in 2015, despite expectations that domestic demand will be dampened by reduced fuel subsidies and the introduction of a new sales tax.

The forecast, alongside an estimate of 5.5 to 6.0 percent growth for this year, was given in the government's 2014/2015 economic report, released on Friday as Prime Minister Najib Razak prepared to deliver his 2015 budget proposals to parliament.

While the Southeast Asian economy, powered by exports of commodities, oil and gas, and electronics, has shown a strong performance in terms of growth, investors are concerned over the high levels of government and household debt.

Mr Najib said in the report's preface that his government remained committed to achieving a balanced budget by 2020, sticking by plans to lower the deficit to 3.0 percent of gross domestic product in 2015 from 3.5 percent this year.

The government said it will also adhere to a self-imposed debt limit of 55 percent of GDP next year, and expected the ratio to be 52.8 percent this year, having reduced it from 54.7 percent in 2013.

Private consumption is expected to grow at a slower pace of 5.6 percent in 2015 compared to 6.5 percent this year, with a goods and services tax (GST) due to be introduced in April at a rate of 6 percent.

Inflation is expected to spike up to 4.0-5.0 percent in 2015 from 3.3 percent in 2014, as a result of the new tax and the increase in administered fuel prices that was announced earlier this month. Lower inflation is expected in 2016 as domestic price pressures fade, the report said.

The government will collect 21.7 billion ringgit from the first eight months of the GST, which along with a higher collection of corporate taxes, will boost tax revenues by 6.8 percent in 2015.

The government's biggest outgoing will be civil servants'pay, which estimated at 65.7 billion ringgit will account for 29.4 percent of operating expenditure in 2015.

The overall bill for subsidies and cash assistance to low income groups is expected to fall by over 7 percent to 37.7 billion ringgit (S$ 15 billion) in 2015 from 40.6 billion ringgit in 2014, partly as a result of the hike in administered fuel prices announced this month.

Najib in a statement on Thursday said current levels of spending on subsidies was "unsustainable", having risen to 2 billion ringgit a month in 2014 from 1.6 billion ringgit eight years ago.

Najib is expected to announce a reform of the fuel subsidy regime - which currently accounts for more than half the money spent on subsidies - in order to move away from a blanket subsidy for all consumers in favor of a system that only benefits lower to middle income groups. "By switching from blanket subsidies to more targeted support, we are getting better value for money," said Mr Najib in the statement on Thursday.

The economic report said changes would be made to subsidies in order to target the benefits for the bottom 40 percent of households and vulnerable groups.

Export growth was expected to slow to 3.2 per cent in 2015 from 6 per cent this year, due to slow economic growth in Europe and expectations that interest rates will go up in the United States. Import growth was seen rising to 5.3 percent in 2015 from 4.3 percent this year.

Consequently, the trade surplus is expected to shrink to 74.1 billion ringgit in 2015 from 85.6 billion this year. And the current account surplus is expected to fall to 49 billion ringgit in 2015 from 53.9 billion ringgit in 2014.