Abstract
Significance The government will probably create an off-budget 'special purpose vehicle' to manage the lending from the Export-Import Bank of China. Using this mechanism rather than including the project in the 2017 budget released in October demonstrates the fiscal and political constraints facing Malaysia's government in attempting to stimulate domestic demand in the face of weak revenues. Impacts Cuts of 12% to defence spending could affect Malaysian naval operations in the South China and Sulu Seas. Malaysia's budget challenges may provide an opening for China to invest more in Malaysian infrastructure. Off-budget borrowing, if not controlled, could threaten Malaysia's credit ratings and stifle accountable public spending.
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