Budget 2024: Sluggish growth in China, US economies may lead to higher interest rates on borrowings

Asenior sovereign risk analyst has warned, ahead of today’s unveiling of Budget 2024, that Malaysians will experience higher interest rates on borrowings.

Sovereign Risk Group, Moody’s Investors Service senior vice-president,  Christian de Guzman, said the lacklustre growth in China and a slowdown in the United States’ economy would have a global effect, and Malaysia would be one of the ‘victims’.

“Everyone expected the slowdown in the US economy, as it had been too strong. China is also slowing down,” he said at the Malaysian Rating Corporation Bhd’s ‘Pre-Budget 2024 Views: Long Story of Fiscal Consolidation’ on Wednesday.

“Malaysia has been lucky as it has Petronas whenever it needed to bulk up its revenue. It could fall back on its reserves during the Covid-19 years,” he said.

“Other countries do not have this (financial) backstop in case of unforeseen circumstances.”

De Guzman, however, warned that Malaysia needs to diversify and derive more revenue from non-oil-based businesses, as it is not sustainable for the long term.

He said that Malaysia also needs to look at ways to reduce the national debt, which climbed to RM1,079.59 billion in 2022, an increase of RM99.78 billion (or 10.2 per cent), from RM979.81 billion, the previous year.

He added that Malaysia may have to focus on tax revenues moving forward and reduce some subsidies.

Barclays Corporate & Investment Bank’s Senior Southeast Asia Economist (Director), Brian Tan, meanwhile said the country was lucky that Bank Negara Malaysia was prudent and conservative in keeping the market stable.

“Malaysia is also lucky that most of its debts are in the local currency,” said Tan.

“This is because the value of the ringgit has fallen. However, the fall is 65 per cent, due to global factors.

“We must watch what The Fed (the US Federal Reserves) does next. If it increases the interest rates, it will surely affect Malaysia and the rest of the world.”

Prime Minister Datuk Seri Anwar Ibrahim will unveil Budget 2024 later today. It will be his second, since taking over as the country’s leader in November.

The 2023 budget, which was tabled by Anwar in February, involved an allocation of RM388.1 billion, with RM289.1 billion set aside for operating expenditure, and RM99 billion for development expenditure, including RM2 billion in contingency savings.