In a special address, Najib said that the goverment remained confident that the country's gross domestic product (GDP) will grow by between 4.5 per cent to 5.5 percent in 2015.
However, the Prime Minister said that the falling oil price necessitated a review of fiscal assumptions underpinning the 2015 Budget, with the revised forecast predicting a revenue shortfall of RM13.8 billion.
"Without any fiscal measures, this would lead to a deficit increase to 3.9 per cent of GDP" he said.
Meanwhile, in light of falling oil prices, volatile capital flows and a worsening global economic outlook, the Prime Minister also announced that Malaysia's fiscal deficit target would be revised to 3.2 per cent of GDP in 2015.
"It is higher than the three per cent set out in the Budget, but lower than the 3.5 per cent in 2014, and in line with the government's continuing commitment to fiscal consolidation," said Najib.
The development expenditure for 2015 meanwhile would be fully maintained, but operating expenditure is expected to be reduced by RM5.5 billion, he said.
Najib, who is also Finance Minister, has set out a strategy to counter external developments and strengthen Malaysia's economic resilience by continuing fiscal reform and consolidation, assisting people and businesses affected by the recent floods, and ensuring sustainable economic growth.
Firstly, he said to boost exports of goods and services, the government will actively promote import-substitution services, such as shipping, port, education and professional services.
The logistics and trade infrastructure will also be improved further while accelerating the implementation of the National Export Council's recommendations, intensifying the tourism industry, reviewing the levy on foreign workers, and waiving visa fees for tourists from, among others, China.
Second, to enhance private consumption, the government will give priority to local contractors to undertake reconstruction works in their respective flood affected areas, intensify the promotion of "Buy Malaysia" products, as well as increase the frequency and extend the shopping hours of nationwide mega sales.
The government will also accelerate the promotion of domestic tourism through competitive domestic air fares and encourage the private sector to leverage on the benefits from the establishment of the Asean Economic Community.
Third, to accelerate private investment, the government will set up a services sector guarantee scheme amounting to RM5 billion for small and medium enterprises in the services sector, with maximum financing of RM5 million and a 70 per cent government guarantee.
The government will also encourage government-linked-companies (GLCs) and government-linked investment companies (GLICs) to invest domestically; further reduce the cost of doing business; allocate 30 per cent of the annual procurement budget of government agencies and GLCs for goods and services to local SME producers; and increase local goods and services in government procurement.
Meanwhile, following the recent severe flooding, Najib also announced measures to assist flood-affected people and businesses, and to rebuild damaged infrastructure.
Among others, the government has provided an initial allocation of RM500 million for rehabilitation works and welfare programmes for flood victims, bringing the total to RM787 million.
As for businesses affected by floods, the premier said the government will provide an additional RM100 million to TEKUN and RM100 million to Amanah Ikhtiar Malaysia (AIM) to provide soft loans to support SMEs and micro-enterprises.
In addition, Bank Simpanan Nasional, Agrobank, SME Bank, TEKUN and AIM will defer existing loan repayments for up to six months; and Bank Negara Malaysia will establish a RM500 million Special Relief Facility for SME loan financing at a concessionary rate of 2.25 per cent, with a grace period of up to six months through banking and development financial institutions.
Bank Rakyat, on the other hand, will offer a personal loan scheme of up to RM50,000 at a financing rate of as low as 3.9 per cent, while loan repayments will start after six months from loan disbursement.
Meanwhile, a sum of RM500 million will be provided by financial institutions with a 70 per cent guarantee under a Flood Relief Loan Guarantee Scheme, and SMEs in the flood affected areas will be exempted from levy payment to the Human Resources Development Fund (HRDF) for a period of six months with effect from Feb 1, 2015.