Malaysia slashes 2015 budget, cuts growth forecast

KUALA LUMPUR, Malaysia (AP) — Malaysia on Tuesday cut its economic growth forecast for this year and announced a slew of austerity measures after tumbling oil prices forced the government to slash spending.

Prime Minister Najib Razak said the government's 2015 budget, announced in October, was based on oil prices averaging $100 a barrel but this projection was no longer realistic as global crude prices have dropped by over 50 percent. State oil company Petronas contributes about a third of Malaysian government revenue.

He said the government lowered its oil price forecast to $55 a barrel, which will lead to a revenue shortfall of 8.3 billion ringgit ($2.3 billion) despite savings from the removal of fuel subsidies last year.

Najib said development spending will still be maintained at 48.5 billion ringgit ($13.5 billion) but the government will slash its operating expenditure by 5.5 billion ringgit ($1.5 billion).

The economy is forecast to grow between 4.5 and 5.5 percent this year, while the budget deficit is expected to equal 3.2 percent of gross domestic product. Earlier, the government forecast the economy to expand 5-6 percent and the budget deficit to narrow to 3 percent from 3.5 percent in 2014.

Without austerity measures, Najib said the budget deficit would have shot up to 3.9 percent of GDP this year.

"We are not in crisis," Najib said in a televised speech. "Indeed, we are taking pre-emptive measures following the changes in the external global economic landscape which is beyond our control. This is to ensure that our economy continues to attain a respectable and reasonable growth."

Najib said the government will trim spending on supplies and services such as overseas travel and the use of professional services to help save 1.6 billion ringgit ($446 million). Transfers and grants to government-linked bodies and agencies will be reviewed to save a hefty 3.2 billion ringgit ($892 million), he said.

A three-month national service program, part of boot camp training for 18-year-olds, will be deferred to save 400 million ringgit ($111 million), while postponing purchases of non-critical assets will save 300 million ringgit ($84 million), he said.

To cut the cost of doing business, Najib said the government will defer electricity tariff hikes this year as well as a gas price hike for industry. He said visa fees for tourists, including those from China, will be waived to boost tourism while levies on foreign workers will be reviewed.

Projects such as a proposed high-speed rail link to Singapore and a trans-Borneo highway will be continued to boost the economy.