Malaysia's budget due at 4 p.m. local time (0800 GMT) may be the toughest yet for embattled Prime Minister Najib Razak as he struggles to balance declining oil revenues, spending priorities and a growing political scandal.
Limited fiscal headroom means the government is likely to cut remaining fuel subsidies but analysts expect authorities to soften the blow by targeting spending to low-income households.
"Perhaps to elicit sympathy from the common folks, Prime Minister Najib said that it is a 'difficult' budget to draft," Wellian Wiranto, economist at OCBC, said in a note Thursday. "Indeed, he would have to juggle between stimulating a sluggish economy and convincing investors of his fiscal rectitude, while keeping an eye on the political implications of it all."
Malaysia's economy is certainly lethargic. Prices for major commodity exports crude oil and palm oil have dropped sharply and its currency, the ringgit, is trading close to its lowest levels since the Asian financial crisis in the late 1990s.
Household debt is also relatively high at around 88 percent of gross domestic product (GDP) capping consumer spending. The government forecasts the economy will grow 4.5-5.5 percent this year, although expectations are for the figure to come at the low end of the range, in danger of its slowest growth since 2009, during the Global Financial Crisis, when the economy contracted.
The government is already nearing its self-imposed debt ceiling of 55 percent of GDP -- it was at 53.8 percent at the end of the second quarter, with government debt guarantees at 15.1 percent of GDP, according to data from Maybank, an investment bank.
The budget is an annual exercise where the government outlines how it plans to spend money and tax residents.