Fis­cal deficit of 2.6% to GDP pos­si­ble

> This is based on fore­cast that oil prices will av­er­age US$50 a bar­rel in 2017: Deutsche Bank econ­o­mist

The Sun (Malaysia) - - SPEAK UP - BY EVA YEONG

KUALA LUMPUR: The gov­ern­ment can re­duce the fis­cal deficit to as low as 2.6% of gross do­mes­tic prod­uct (GDP) if oil prices av­er­age US$50 (RM209) per bar­rel, said Deutsche Bank, Sin­ga­pore, econ­o­mist Diana Rose del Rosario.

“Our house view is at least US$50 per bar­rel on av­er­age. If we are right in 2017, we see that the Fi­nance Min­istry has room to meet a lower fis­cal deficit of as low as 2.6% of GDP,” she said at a di­a­logue on Bud­get 2017 or­gan­ised by the Malaysian Eco­nomic As­so­ci­a­tion yes­ter­day.

She said the 3% fis­cal deficit pro­jec­tion an­nounced un­der Bud­get 2017 is on the con­ser­va­tive side and made un­der the as­sump­tion of an av­er­age oil price of US$45 per bar­rel.

Rosario said some of the down­side risks that may af­fect Malaysia are pro­tracted weak­ness in com­mod­ity prices, global trade ac­tiv­ity, slow­down in China and Eu­ro­pean Union un­cer­tainty aris­ing from Brexit.

Rosario said in or­der to con­tinue with its fis­cal con­sol­i­da­tion, Malaysia must strive for a lean and ef­fi­cient pub­lic ser­vice.

“Emol­u­ments ac­count for 26% of to­tal opex and gov­ern­ment al­ready tight­ened spend­ing in this area. It used to grow 10% year on year be­tween 2010 and 2014. In a sense growth has fallen 50% to 5% year on year 2016 to 2017. Suc­cess has been there in terms of tight­en­ing in this area but there re­mains great room to cut down emol­u­ments,” she said.

Rosario said Malaysia has a high num­ber of civil ser­vants com­pared with the rest of Asean, with 5.1 civil ser­vants for ev­ery 100 pop­u­la­tion.

Mean­while, she noted, debt ser­vice pay­ments and pen­sion charges ac­count for al­most 20% of to­tal opex. There is up­ward pres­sure on debt ser­vice pay­ments given that in­ter­est rates are set to rise while pen­sion charges are set to in­crease 15% this year.

While Malaysia’s ag­ing pace is set to sta­bilise over the next five years, the work­ing force is head­ing to­wards sus­tained de­cel­er­a­tion over the next five years.

“This does not bode well for tax col­lec­tions and do­mes­tic de­mand. There is a need to ramp up real wages, ideally stem­ming from a boost in pro­duc­tiv­ity, to off­set this,” she said, adding that there is room for fur­ther sub­sidy ra­tio­nal­i­sa­tion.

How­ever, she is scep­ti­cal about the gov­ern­ment’s pro­jec­tion for cor­po­rate in­come tax col­lec­tions, which is set to in­crease by RM6 bil­lion next year.

“We don’t see any force to drive CIT (cor­po­rate in­come tax) col­lec­tions given that CIT rate is the same ... but even with lower CIT col­lec­tions the gov­ern­ment can still achieve a fis­cal deficit of about 2.8% if the oil price is higher (than US$45 per bar­rel).”

Mean­while, Sec­re­tary Gen­eral of the Trea­sury Tan Sri Dr Mohd Ir­wan Seri­gar Ab­dul­lah said while con­tin­gent li­a­bil­i­ties are a pres­sure, there is no dan­ger in terms of de­fault.

He was com­ment­ing on claims that Non Fi­nan­cial Pub­lic Cor­po­ra­tions spend­ing deficit is a “time bomb”, grow­ing from RM10.6 bil­lion in 2013 to RM52.3 bil­lion in 2014 and RM56.9 bil­lion in 2015.

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