Malaysians like cab driver Ramakrishnan Ramachandran are getting used to handouts from the government as the next election looms. The budget deficit is set to show the strain, regardless of who wins the vote.
From smartphone rebates to household electricity subsidies and higher wages for civil servants, Prime Minister Najib Abdul Razak has gone on a spending binge to woo voters ahead of polls that must be held by late June.
In 2012, he announced a 35 million ringgit (US$11 million) voucher programme to help taxi drivers pay for new tyres, and yesterday said 1,000 of them will get a grant to offset the cost of a new car from Proton Holdings Bhd.
“The government simply throws the money,” Ramachandran, 54, said as he waited for passengers outside a Kuala Lumpur shopping mall, adding that the 520 ringgit he received for the wheels won’t deter him from voting for the opposition for the first time.
He claimed that, “Whatever the government gives, I take.”
The opposition, attempting to break the ruling coalition’s hold of more than five decades on power, is also prepared to be generous as it promises free university education, lower fuel prices and the elimination of toll fees.
Any fiscal deterioration from persistent largesse could raise the risk of capital outflows should the United States shift to tightening monetary policy, triggering a reversal in the flood of cash into emerging markets in recent years.
‘It’s not pretty’
“No one will be overly alarmed by whether Malaysia can pay for its spending now, but its fiscal trajectory is not a pretty thing,” said Vishnu Varathan, a Singapore-based Mizuho Corporate Bank Ltd economist who has covered Malaysia for seven years.
“Should investors start pulling money out of emerging markets, Malaysia is not at the top of the hit list, but the sustainability of the fiscal situation is a concern for longer-term investors,” he stressed.
South-East Asia’s third-largest economy has reported 15 years of budget deficits, and elevated spending has prompted credit rating companies to highlight risks to government finances even as growth accelerates.
Last week, the central bank said the economy may expand as much as six percent this year, compared with an earlier forecast of up to 5.5 percent.
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