Malaysian Prime Minister Najib Razak is expected to introduce additional deficit-slashing measures at this week's annual budget presentation, which could spell more pain for consumers, economists say.
Subsidy reforms and the implementation of a 6 percent goods and service tax (GST) are among the highlights, deemed necessary for the country's fiscal consolidation efforts. But analysts and citizens alike are worried about a resulting spike in inflation.
The two measures are expected to weaken purchasing power, reduce private consumption and household spending, and increase the cost of living, according to Australia New Zealand Banking (ANZ).
"The government will have to strike a delicate balance of tough trade-offs between fiscal prudence and maintaining current growth momentum, while providing fiscal transfers to help cushion low-income households against the inflationary impact," ANZ economists said in a note.
The new GST is expected to take effect in April. Several banks expect it to push the annual consumer price index (CPI) above 4 percent in 2015, which would mark a more than six-year high.