Project deferments seen timely for account surplus
KUALA LUMPUR: The government’s decision to postpone infrastructure projects with high import components is timely to ensure that Malaysia’s current account remains in surplus, said economists.
For the first half of this year, the country’s current account still recorded a surplus value of 2.7 per cent of gross domestic product (GDP).
As a result, Malaysia is not categorised as a country with a twin deficit problem, which is particularly pressing for countries facing large-scale fund outflows such as Turkey, Argentina and Indonesia, said Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid.
In economics, a twin deficit occurs when a nation has both a current account deficit and a fiscal deficit. When a country has a double deficit, it is a debtor to the rest of the world.
Over the long term, a twin deficit may cause the nation’s currency to devalue.
Afzanizam said in the first half of this year, the government’s fiscal deficit was at RM30.8 billion or 4.5 per cent of GDP. That figure has exceeded the 2018 target of 2.8 per cent of GDP.
“Therefore, the government must be cautious in implementing their spending programmes, both in terms of operating expenditure and development expenditure,” he said.
Afzanizam said that international credit rating agencies such as Fitch Rating has indicated that Malaysia’s sovereign credit rating is at “BBB+” level based on their internal model.
However, Fitch has decided to keep the rating at “A”- as the government's financial weakness was temporary, he added.
However, Afzanizam stressed that such a situation should be taken seriously as the risk for a downgrade in credit rating is inherent.
Meanwhile, MIDF Amanah Investment Bank Bhd's chief economist Dr Kamaruddin Mohd Nor said based on current economic indicators, the world economic growth rate will grow at moderate pace moving forward.
He said several factors such as the trade war between the United States and China and uncertainty of world policies could have a negative impact on the Malaysian economy.
Nevertheless, Kamaruddin said, the domestic economy should grow at a good pace for next year, thus contributing to government revenues.
“We expect 2018 and 2019 to be the transition years for new policies by the government to ensure that the country's financial condition continues to be in good shape.
“Fiscal restructuring and reform agenda will be highlighted in the upcoming 2019 Budget. We expect the government to continue with the agenda to reduce the budget deficit. The budget deficit for 2018 is targeted at 2.8 per cent. A similar figure is seen for the coming year,”he added.