KUALA LUMPUR (Oct 19): The developing world’s worst-performing currency is forecast to strengthen as a rally in oil prices enables Malaysia to stimulate its slowing economy while curbing its budget deficit for a seventh straight year.

Prime Minister Najib Razak is facing pressure to unveil an expansionary budget this week as he prepares to call a general election amid a forecast for growth to slow to the least since 2009. Brent crude has nearly doubled from a 12-year low to trade at around $52, boosting the outlook for a nation that derives a fifth of its revenue from energy-related sources.

“We should expect positive announcements in the budget,” said Saktiandi Supaat, Singapore-based head of foreign-exchange research at Malayan Banking Bhd., the second-best forecaster for the ringgit in Bloomberg’s third-quarter rankings. “With speculation in the markets that elections could be next year, whether true or not, any positive news could be positive for the ringgit.”

The median forecast in a Bloomberg survey is for the ringgit, which was at 4.1940 per dollar as of 7:34 a.m. Wednesday in Kuala Lumpur, to appreciate to 4.10 by March 31.

Oil Slump

Crude’s 35 percent slump in 2015 spurred the government to cut its assumption for the commodity to a range of $30-$35 a barrel, from $48. Najib said in April the nation loses 450 million ringgit ($107 million) in annual income for every $1 drop in oil.

The budget, to be tabled in parliament on Friday, will contain measures to alleviate the burden on poorer households, boost spending on education and develop infrastructure, Treasury Secretary General Mohd. Irwan Serigar Abdullah  said. There is speculation Najib will call for an election next year, although one isn’t due until 2018.

“Higher oil prices may give the government a bit more room to pump-prime,” said Sook Mei Leong, Southeast Asian head of global markets research in Singapore at Bank of Tokyo-Mitsubishi UFJ, the third-most accurate forecaster. “If it’s going to be elections soon, it should be a populist budget."

Probe Concerns

The ringgit’s appeal has been dented by investigations into activities of 1Malaysia Development Bhd. by regulators from Singapore to Switzerland. The state investment firm has denied any wrongdoing. Macquarie Bank Ltd. sees the ringgit declining to 4.40 per dollar by March 31 as Bank Negara Malaysia tolerates a weaker currency to stimulate demand.

“The oil positives offer some room for the government to spend a bit more,” said Nizam Idris, head of foreign-exchange and fixed-income strategy in Singapore. “But I don’t think it will give a strong stimulus. Net-net, I don’t see too many positives domestically to think that the ringgit can rebound.”

Economic growth will slow to 4.1 percent this year, the least since a contraction in 2009, according to analysts in a Bloomberg survey. The government cut its expansion estimate in January to a range of 4 percent to 4.5 percent and is targeting the fiscal deficit to shrink to 3.1 percent of gross domestic product, from 3.2 percent in 2015.

While the oil rebound “is not a game-changer” given its slump in the past two years, the recovery should aid the undervalued currency, according to ING Groep NV, which predicts it will appreciate to 4.15 by March 31.

“Having global oil prices at least firm is ringgit-positive,” said Tim Condon, head of Asian research in Singapore