Lim­ited fis­cal wig­gle room, says StanChart

> Govt ex­pected to set deficit tar­get of 3.0% of GDP for 2017

The Sun (Malaysia) - - SPEAK UP -

PETALING JAYA: Stan­dard Char­tered Re­search (StanChart) ex­pects the Malaysian govern­ment to tar­get a fis­cal deficit of 3.0% of gross do­mes­tic prod­uct (GDP) in 2017, with lim­ited room to re­duce the gap in a more mean­ing­ful fash­ion due to a slow eco­nomic en­vi­ron­ment and lower oil prices.

It ex­pects the govern­ment to con­tinue its fis­cal con­sol­i­da­tion ef­forts which be­gan in 2009 but noted that deficit re­duc­tion may be lim­ited in a chal­leng­ing rev­enue en­vi­ron­ment. The fis­cal deficit tar­get for this year was 3.1% of GDP.

StanChart said rev­enue growth in the first eight months of this year may be a good in­di­ca­tor of the chal­leng­ing rev­enue en­vi­ron­ment in 2017. Rev­enue for the first eight months of 2016 reached only 62% of the re­vised rev­enue tar­get (based on an oil price of US$35 per bar­rel) of RM217.9 bil­lion (ver­sus 65% in the first eight months of 2015).

“While we fore­cast higher oil prices for 2017, the govern­ment may project a con­ser­va­tive es­ti­mate con­sid­er­ing the un­cer­tain oil price out­look. Key do­mes­tic con­cerns in­clude the cost of liv­ing, and hous­ing and ur­ban is­sues, ac­cord­ing to a govern­ment sur­vey,” said StanChart.

Re­cent bud­getary news has fo­cused on pro­vid­ing more sup­port for low­er­in­come house­holds, al­though the govern­ment is aware that it has to be fis­cally pru­dent. It may also im­ple­ment mea­sures to sup­port af­ford­able hous­ing.

As such, StanChart said, fis­cal trans­fers such as BR1M (cur­rently at 2.7% of cur­rent ex­pen­di­ture) may rise fur­ther. The govern­ment may have to bal­ance so­cial spend­ing with the need to main­tain cap­i­tal ex­pen­di­ture, within a tight rev­enue sit­u­a­tion.

Mean­while, even though fis­cal rev­enue has been run­ning slower yearto-date than in pre­vi­ous years, the govern­ment re­mains con­fi­dent of meet­ing its 2016 fis­cal deficit tar­get, ac­cord­ing to the finance min­is­ter II.

“We believe the bud­get an­nounce­ment is neu­tral for the rates mar­ket in the medium term, al­though gross sup­ply may in­crease mod­estly due to higher Malaysian Govern­ment Se­cu­ri­ties (MGS) re­demp­tions of RM47 bil­lion in 2017, ver­sus RM26 bil­lion in 2016.” Govern­ment In­vest­ment Is­sue (GII) re­demp­tions will amount to RM20 bil­lion in 2017, ver­sus RM33 bil­lion in 2016.

Based on the 2017 fis­cal deficit tar­get of 3.0% of GDP, StanChart es­ti­mates gross bor­row­ings of RM107 bil­lion – new fund­ing needs of RM40 bil­lion and MGS and GII re­demp­tions of RM67 bil­lion. It ex­pects the govern­ment to split gross is­suance of MGS bonds and GII 55:45, ver­sus 51:49 in 2016.

“We stay pos­i­tive on MGS, as lo­cal de­mand for long-end bonds re­mains healthy due to high cash on hand,” it said.

SEE

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