KUALA LUMPUR — Malaysia’s budget deficit will continue to be strained regardless of whether Barisan Nasional (BN) or Pakatan Rakyat (PR) wins the elections, Bloomberg reported regional economists as saying today.

In its report, the international business wire pointed to elevated government spending in recent years under the Najib administration which in 2012 was largely due to wage and pension increases, fuel subsidies and blanket cash handouts to poorer households.

This was due to its “generous” pledges to offer free education in public universities, lower fuel prices, eliminate toll fees, spend an additional RM13 billion for more affordable housing and even increase the threshold for taxpayers from RM250,000 to RM400,000.

Quoting Singapore-based Mizuho Corporate Bank Ltd economist Vishnu Varathan, the wire reported that should investors start pulling money out of emerging markets, “the sustainability of the fiscal situation is a concern for longer-term investors”.

“No one will be overly alarmed by whether Malaysia can pay for its spending now but its fiscal trajectory is not a pretty thing,” the economist familiar with Malaysia’s markets said.

Citing more strains, Bloomberg pointed out that the FTSE Bursa Malaysia KLCI Index was the worst-performing Southeast Asian benchmark this year due to the prospect of an ever narrower vote margin between the ruling BN and the opposition PR in Election 2013.

In Election 2008, BN struggled to a narrow victory, losing its customary two-thirds parliamentary majority after ceding five states and one federal territory to the opposition.

Projections for the next polls have placed BN the likely winner again, but many observers believe that the ruling pact may not recapture the coveted parliamentary majority that Prime Minister Datuk Seri Najib Razak needs to cement his position in government and introduce cost-cutting moves that may reduce his government’s popularity with the people.

“There’s a danger that after the election, if it’s a close outcome the government may not have the will to carry out tough reforms and curb spending.

“Overall, the risk is for the fiscal deficit to deteriorate,” Singapore-based Bank of America Corp economist Chua Hak Bin was quoted as saying in the Bloomberg report.

Najib’s approval rating is currently at its lowest since 2011 at 61 per cent, down from 63 per cent last December, according to independent pollster Merdeka Center’s latest survey last month.

This comes despite the prime minister’s cash handout measures, which include vouchers for tyre subsidies to taxi drivers, book vouchers to students and RM500 cash payments to households earning RM3,000, among others.

In the same breath, Najib has pledged to balance the budget by 2020 from more than four per cent of the GDP last year, but has at the same time continued to promise more cash handouts to Malaysians and even shelved the government’s plan to cut subsidies and introduce the goods and services tax (GST).

Massive public infrastructure projects have also been introduced, like the Mass Rapid Transit (MRT) railway plan that will set the budget back by billions of ringgit.

According to Institute for Democracy and Economic Affairs (IDEAS) chief executive Wan Saiful Wan Jan, BN and PR are in a “race to the bottom” as both pacts fight to win the polls by introducing more populist measures to woo an electorate now stuck in the middle-income trap.

“Whatever the scenario, the likelihood is Malaysia will be heading towards a welfare state and the impact on the economy will be long term,” he was quoted saying.