Budget revision unlikely as Malaysia on track
If assuming oil prices were to creep lower and average about US$40 per barrel in the second half (2H), the average full year would still be slightly above US$46 per barrel, which is marginally higher than Ministry of Finance’s (MoF) forecast.
KUCHING: Malaysia’s government is still on track to achieve its budget deficit target of three per cent of the gross domestic product (GDP) in 2017 (down 3.1 per cent in 2016), despite the sharp pullback in oil prices seen recently, analysts observed.
RHB Research Sdn Bhd (RHB Research) yesterday opined that the government was unlikely to make any revisions to its 2017 Budget for the time being despite a sharp pull-back in oil prices of late.
“If assuming oil prices were to creep lower and average about US$40 per barrel in the second half (2H), the average full year would still be slightly above US$46 per barrel, which is marginally higher than Ministry of Finance’s (MoF) forecast,” it said in a note yesterday.
“In any case, even if there is a revision, we believe it would likely be done in the forthcoming 2018 Budget on October 27 rather than now.”
It explained that with the assumption that if oil prices would to continue to stay low and average at about US$40 per bbl for 2H17F, prices for the full year would still be averaging at around US$46.40 per bbl.
“This is still marginally higher than the MoF’s assumption of US$45 per bbl for oil prices for the year. This suggests that there is no need for the government to make any revisions to its 2017 budget as it did previously when oil prices fell sharply.
“We believe the Government is still on track to achieve its budget deficit target of three per cent of GDP in 2017 (down 3.1 per cent in 2016).
“It would therefore not have to cut its expenditure akin to what had happened in the fourth quarter of 2016 (4Q16), which posed a drag to the overall economic growth,” it added.
In 1Q17, the government registered a deficit of 6.2 per cent of GDP, or RM20.2 billion, deteriorating from a deficit of 6.1 per cent of GDP, or RM17.7 billion, in the same period of last year, mainly on the back of higher expenses during the quarter, while
RHB Research
revenue collection fell.
“Indeed, revenue declined by 4.4 per cent year-on-year (y-o-y) during the quarter to RM46.6 billion, from 6.8 per cent (RM59.8 billion) in 4Q16 and compared with a 5.3 per cent decline (RM48.8 billion) in 1Q16.
“This was mainly on the back of a drop in indirect taxes, particularly the lower collection in GST during the quarter. As it stands, GST collection dropped by 9.5 per cent y-o-y in 1Q17, after a jump of 25.3 per cent in 4Q16 and compared with 6.5 per cent decline in 1Q16.
“This is in contrast to a pick-up in private consumption growth and retail and wholesale trade during the quarter. We are not sure of the reasons behind the decline but it could have been caused by a higher GST refund claimed by businesses,” RHB Research commented.
On the other hand, the research team pointed out that the government had increased its total expenditure, albeit marginally by 0.5 per cent y-o-y to RM66.9 billion during the quarter, its highest level since 4Q15 and compared with a 12.7 per cent decline in 4Q16 and a 5.1 per cent increase in 1Q16.
“This was mainly on the back of the larger increase in operating expenditure ( opex) by 0.3 per cent y-o-y, with the pick-up in expenditure of emoluments driving the increase,” it said.
Similarly, RHB Research pointed out that net development expenditure rose during the quarter, after a decline in the previous quarter, as the government increased the expenditure in 1Q17.
“Despite the higher budget deficit in 1Q17, we believe the government remains committed to achieve its budget deficit target for 2017.
“In a worst case scenario should oil prices fall below the US$45 per bbl average for the year, we are of the view that the government would likely cut back development expenditure, as it has always done in
the past whenever faced with an unexpected shortfall in revenue,” RHB Research said.