Govt re­futes claims by No­mura Re­search

Fis­cal po­si­tion well within the 3.7% of GDP deficit tar­get for 2018

The Star Malaysia - StarBiz - - Front Page -

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

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