KUALA LUMPUR (REUTERS) - Malaysia will be able to meet its budget deficit target for 2018 even though the scrapping of a goods and services tax will blow a RM21 billion (S$7.06 billion) hole in the government's wallet, the country's finance minister said on Thursday (May 31).

Mr Lim Guan Eng said that the in lost revenue from the tax due to be axed on Friday would be offset by rising oil-related revenues, spending cuts on non-essential projects, increased dividends from govt-linked firms and a new sales tax expected to be introduced in September.

Malaysia's new government has said it has RM1 trillion in debt and liabilities, blaming the ballooning figure on abuses by the previous administration led by scandal-plagued Najib Razak.

"We are mindful that Federal Government debt which has exceeded RM1 trillion, requires fiscal discipline," Mr Lim told a news conference.

Mr Lim said the government's projected fiscal deficit would increase slightly to RM40.1 billion in 2018 from RM39.8 billion, which would maintain the budget deficit at 2.8 per cent of GDP.

He said the current account balance - government revenue after operating expenditure - will remain positive, and that there were no plans to revise economic growth forecasts for now.

He also said Malaysia has paid a RM143.75 million bond coupon payment of troubled state fund 1Malaysia Development Berhad (1MDB) that was due on Wednesday.

"We have settled that... I have signed it very reluctantly, and the payment has been made," said Mr Lim.

The new Malaysian government that took charge this month has said that 1MDB is unable to repay its debts but the government would honour all commitments for the state fund.

When asked about a possible public listing of state petroleum firm Petronas as an option for raising funds, Mr Lim said such a proposal "has not been put forward to the government".

Mr Lim said higher dividends from government-linked entities such as Petronas, sovereign wealth fund Khazanah Nasional Berhad and the central bank could deliver an extra RM5 billion this year. That would be alongside RM5.4 billion of extra tax revenue from oil companies in Malaysia, and RM10 billion saved through reviews of high-priced projects.

A sales tax due to be introduced on Sept 1 will add an additional RM4 billion to the public purse this year, the finance ministry estimated.