Govt refutes claims by Nomura Research
Fiscal position well within the 3.7% of GDP deficit target for 2018
PETALING JAYA: Finance Minister Lim Guan Eng has refuted Nomura Global Research’s claims that Malaysia’s fiscal deficit for 2018 would deteriorate to 3.9% of gross domestic product (GDP).
Lim said the government is confident of achieving 3.7% and 3.4% of fiscal deficit to GDP in 2018 and 2019, respectively.
“According to preliminary financial accounts closed last year, the government’s fiscal position is well within the 3.7% of GDP deficit target for 2018.
“Furthermore, sales and service tax collections exceeded our initial projection by 34% at RM5.4bil, compared to the projected figure of RM4bil,” he said in a statement.
Nomura had recently issued an “underweight” call on Malaysian equities, on the back of a perceived meek pace of structural reforms and caution on a possible sovereign ratings downgrade, which could trigger more capital outflows.
It said Malaysia’s earnings growth were weak and had expensive valuations, making it one of the worst in the region.
The research house also highlighted that the fall in crude oil prices could increase Malaysia’s fiscal deficit ratio.
Lim reiterated that the government has been upfront that fiscal reforms would take three years to complete.
Having conveyed the same message to various parties, which include top credit rating agencies like Fitch Ratings, Moody’s Investors Service and Standard & Poor’s, all three agencies have understood the amount of time required to carry out the reforms.
“As a result, they (rating agencies) have maintained the government’s credit ratings at A3 or A-, especially when the current government has been more transparent about its fiscal position and financial obligations, compared to the previous administration,” said Lim.
Additionally, he said there have been multiple structural reforms already taking place, with more measures to be announced for 2020.
Some of these structural reforms include the reprioritisation of infrastructure projects, the implementation of zero-based budgeting, the application of open tender across all ministries, the ongoing migration towards accrual basis accounting, as well as the establishment of a Tax Reforms Committee and Public Finance Committee.
For example, the mass rapid transit two (MRT2), MRT3, light rail transit three and other infrastructure projects have been reviewed to increase their financial viability and reduce the government’s financial burden.
This has since resulted in savings of more than RM27bil.
On the issue of low crude oil prices, which stands at about US$60.90 per barrel, Lim said the estimated government dependence on petroleum income this year was only 19.5%, not inclusive of the revenue derived from the goods and services tax (GST).
Nomura had estimated that 30.2% of federal revenue in 2019 would be derived from oil-related sources.
“The one-off RM30bil special dividend from Petroliam Nasional Bhd was needed to partially finance the payments of unpaid GST and income tax refunds. In contrast, in 2009, petroleum revenue made up only 41.3% of government income.
“This suggests that while petroleum is an important source of revenue, it is becoming less and less important to public finance,” said Lim, adding that analysts should take the low energy prices within this context.
Apart from that, the government is introducing new measures like the soda tax and the sale of noncore, non-strategic assets that are not accounted for in the fiscal deficit numbers, as highlighted in the Budget 2019 documents available publicly and online.
Lim said such additional measures would be sufficient to function as a comfortable buffer, should the average Brent crude oil price hover within the US$50-US$70 per barrel band.
Sales and service tax collections exceeded our initial projection by 34% at RM5.4bil, compared to the projected figure of RM4bil.
Lim Guan Eng