‘Malaysia’s fiscal deficit may widen to3.2pc’
But UBS optimistic loss of GST revenue will be offset by SST rollout in September
MALAYSIA’S fiscal deficit is likely to widen to 3.2 per cent of gross domestic product (GDP) this year, missing the 2.8 per cent target, said UBS economist Alice Fulwood.
This is expected to be the result of the zero-rated and subsequent abolition of the Goods and Services Tax (GST).
Fulwood, however, said the shortfall would be offset by the rollout of the Sales and Service Tax (SST) in September, and that it would not affect Malaysia’s sovereign ratings.
She said the GST was an important revenue generator and its abolition would impact the government’s revenue.
“We are optimistic that the loss of revenue will be offset by the SST rollout in September. And they (the government) can bring the deficit down to 2.8 per cent of GDP by next year.
“So, it will be a slight miss this year, and I do not think it will trouble the rating agencies too much and impact the ringgit,” she said by telephone yesterday.
Fulwood said despite signs of an economic slowdown, UBS had kept Malaysia’s GDP forecast at 5.4 per cent this year.
She said the trade dispute between the United States and China, and the likely imposition of further tariffs, would likely slow growth in Malaysia in the short term due to its dynamic and open economy.
Fulwood said in the long term, Malaysia’s nimble economy was relatively better positioned to benefit from market share gains and attract foreign direct investments.
Chinese companies were more likely to expand their production to Malaysia compared with other Asean economies as a result of the US-China trade dispute, she added.
“Malaysia is one of the bestpositioned exporters to gain a large market share in the event that tariffs make Chinese exports less competitive.
“Malaysia’s ability to trade at China’s expense is due to the largely similar export products, such as electronics. Thus, Malaysia is positioned to be a potentially strong substitute exporter to the US. The sector most likely to see these gains is electronics,” she said.