RAM revises 2018 fiscal deficit forecast to 3.2%

KUALA LUMPUR: RAM Ratings has revised Malaysia’s fiscal deficit expectations for 2018 to 3.2% of the gross domestic product (GDP), which is a still-manageable level from 2.8% previously.

It said fiscal gains derived from the new administration’s cost rationalisation exercises and higher oil and gas-related earnings would mitigate the impact of revenue foregone from the abolition of the goods and service tax (GST) and reinstatement of retail fuel price subsidies.

“Nevertheless, the government may still be able to meet its initial fiscal deficit target of 2.8% of GDP in 2018.

“This is given the possible higher dividend revenue from government-linked entities and the pragmatic approach to implementing several of the administration’s pledged 100-day policy changes,” it said in a statement.

Over the next few years, Malaysia’s fiscal deficit is expected to remain contained at around 3% of GDP due to revenue constraints and the significant costs of various election promises, it added.

RAM Rating said the fulfilment of these pledges, which included a medical scheme for marginalised households, the reinstatement of retail fuel subsidies and introduction of co-payment systems for minimum wage increases and housewives’ pensions (Suri Incentive programme), is estimated to amount to 0.8% of GDP and anticipated to accelerate long-term fiscal expenditure growth.

Potential compensation payments amid reviews of large infrastructure projects and likely long-term developments regarding motorway tolls may similarly impose further costs.

Elsewhere, the level and structure of Malaysia’s fiscal revenue continue to be an issue. The level of fiscal earnings – at an estimated 15.7% of GDP for 2018 – is low compared to regional peers’ (Thailand: 21.1%, Singapore: 20.2%). — Bernama