Guan Eng rebuts Nomura’s report on fiscal deficit

PUTRAJAYA: Finance Minister Lim Guan Eng yesterday rebuked Nomura Global Markets Research’s report projecting Malaysia would record a fiscal deficit of 3.9% in 2018 and 3.7% in 2019, saying that Malaysia is confident of achieving 3.7% in 2018 and 3.4% this year.

Lim said he had checked with the preliminary financial accounts that were closed and the government’s fiscal position was well within the 3.7 per cent of gross domestic product (GDP) deficit target for 2018.

“Nomura Research’s report that the 2018 fiscal deficit would deteriorate to 3.9 per cent of GDP is simply untrue,” he said in a press conference at the Finance Ministry here yesterday.

Furthermore, he said the Sales and Services Tax (SST) collection after its reintroduction Sept 1, 2018, had exceeded the initial projection by 34 per cent at RM5.4 billion for November and December, compared with the projected figure of RM4 billion.

Collection for import sales was RM2.896 billion, domestic sales tax (RM1.055 billion) and service tax (RM1.414 billion), he said.

In its ASEAN Strategy report yesterday (Wednesday), Nomura Research has downgraded Malaysian equity market to “underweight” from “neutral” previously, on poor earnings growth prospects.

The report said since May of last year, it has held a “neutral” stance on Malaysian equities, largely premised on the thesis that “reforms prospects” could keep the multiples elevated, despite micros and macros not being very supportive.

It said its economists believed there is a high risk of fiscal slippage and the possibility of a sovereign ratings downgrade that could trigger more capital outflows.

Contrary to the research house’s opinion, Lim said the multiple structural reforms announced by the government are already happening.

Citing examples, he said the reprioritisation of infrastructure projects like Mass Rapid Transit (MRT) 2, MRT 3, Light Rail Transit 3 and other infrastructure projects was to increase their financial viability and reduce the financial burden to the government immediately, which had resulted in savings of more than RM27 billion.

“The government has been upfront that the fiscal reforms will take three years to complete. More measures will be announced for 2020, in addition to the measures announced during the 2019 Budget,” he said.

He added that the government also conveyed the same message on the time required to complete the reforms to various parties, including the top credit rating agencies – Fitch Ratings, Moody’s Investors Service and S & P Global Ratings.

Meanwhile, Lim said the government would not recalibrate the 2019 Budget if the average Brent crude oil price hover within US$50 (US$1=RM4.09) and US$70 band. Currently, the crude oil price is at US$60.90.

He said apart from the onetime RM30 billion special dividend from Petronas needed to partially finance the payments of unpaid Goods and Services Tax (GST) and income tax refunds, the estimated government’s dependence on petroleum income this year was only 19.5 per cent and this was without GST revenue.

He said in 2009, the petroleum revenue made up only 41.3 per cent of government income.

“This suggests that while petroleum is an important source of revenue, it is becoming less and less important to public finance.

“Analysts should take the low energy prices within this context, as well as the fact that the government is introducing new measures like the soda tax and sales of non-core, non-strategic assets that are not accounted for in the fiscal deficit numbers.

“These additional measures will be enough to function as a comfortable buffer,” he added.

Meanwhile, Lim said Malaysia was politically stable under the present ruling Pakatan Harapan government.

“Any change in leadership as agreed beforehand will be done orderly within legal and democratic norms. Malaysia is a democracy and debates are part of robust democratic culture. These debates do not distract the government from implementing its planned and scheduled reforms,” he said.