Kenanga Research: 3.1 pct deficit target for 2016 achievable

KUALA LUMPUR: Kenanga Research said the slightly better outlook for crude oil prices has strengthened the possibility that Malaysia’s deficit target of 3.1 per cent of Gross Domestic Product (GDP) for 2016 is achievable.

The reseach house yesterday revised up its Brent crude oil average price for 2016 to US$41 per barrel, from US$ 38 per barrel, while maintaining its year-end target of US$47 per barrel.

“This provides greater assurance that the official and our budget deficit target of 3.1 per cent of GDP would be achievable while supporting GDP growth to fall within the 4.0 per cent to 4.5 per cent target range this year,” it said in a statement today.

It said the benchmark Brent oil price settled above the psychologically important price barrier of US$50 per barrel on June 2 and ended 0.4 per cent higher at US$49.94 per barrel on Thursday despite a meeting of the Organisation of the Petroleum Exporting Countries (OPEC) oil producers’ group failing to set a cap on the amount of oil the group produces.

“This suggests that the heightened financial and macroeconomic risks on oil producing countries, including Malaysia, may have eased and it would offer greater assurance that the budget deficit forecast of 3.1 per cent of GDP this year is right on track,” it said.

Earlier in January, when the government recalibrated its 2016 Budget, adjusting average Brent oil price to US$30-35 per barrel from US$48 per barrel to reflect lower crude prices, it still maintained its fiscal deficit target of 3.1 per cent of GDP, which resulted in an estimated federal government revenue shortfall of RM7 billion to RM9 billion.

“Now that crude prices are back up above US$40 per barrel the government is still retaining its low price assumption, suggesting that fiscal revenue would likely increase or its estimated shortfall would be sizably reduced. — Bernama