Malaysia's fiscal deficit is projected to decline to RM38.8 billion or 3.1 percent of Gross Domestic Product (GDP) in 2016 compared with 3.2 percent expected this year.

The Finance Ministry said the thrust of the fiscal policy in 2016 will continue to emphasise fiscal consolidation by further reducing the fiscal deficit towards achieving a balanced budget by 2020.

"The government will continue to intensify spending discipline by focusing on efficiency and cost-effectiveness.

"Furthermore, revenue enhancement efforts would be strengthened by broadening the tax base and narrowing the tax gap," the ministry said in the 2015/2016 Economic Report released in conjunction with the tabling of the 2016 Budget by Prime Minister Najib Abdul Razak, who is also the Finance Minister.

The ministry said the federal government revenue collection next year is expected to grow marginally by 1.4 percent to RM225.7 billion, largely due to higher collection of tax revenue.

It said collection from oil-related revenue is expected to be lower at 14.1 percent of total revenue compared to 19.7 percent this year in tandem with the projected lower global crude oil prices.

However, it said the collection of the Goods and Services Tax (GST) in its first full-year implementation is projected to be significantly higher at RM39 billion (3.1 percent of GDP), offsetting the contraction of oil-related revenue.

Meanwhile, the federal government expenditure is expected to increase by 1.7 percent to RM265.2 billion in 2016 from RM260.7 billion this year with 81.1 percent provided for operating expenditure while 18.9 percent for development expenditure.

It added that operating expenditure is projected to increase marginally by 0.9 percent following continuous efforts to rationalise and optimise government spending.

On the other hand, development expenditure is expected to rise 5.4 percent, of which RM30.3 billion would go to the economic sector while RM13.1 billion for the social sector, including RM4.7 billion for education and training sub-sector and RM4.4 billion for health and housing sub-sector.

The security sector would be provided RM5 billion to enhance the capability of the armed forces and police and RM1.6 billion would be allocated for general administration sector for upgrading of government facilities nationwide.

- Bernama