MARKET DEVELOPMENT
Projected Lower Budget Deficit Achievable
Projected Lower Budget Deficit Achievable
22/01/2011 (Borneo Post) - Analysts across the board were generally receptive of the goverment’s move to estimate a lower budget deficit of minus 3.2 per cent for Gross Domestic Product (GDP) for 2015, but underscored risks such as oil prices and possible shortfalls in tax revenue receipts.
Analysts with Affin Hwang Investment Bank Bhd (Affin Hwang Capital) believed the projected lower budget deficit can be achieved, but cited risks that the country’s budgetary position could expand due to possible shortfall in tax revenue receipts – especially from direct taxes – as the external environment remains uncertain.
“We estimated earlier that the fiscal deficit will widen slightly by 0.3 percentage points to 3.3 per cent of GDP in 2015,” it highlighted in a note yesterday.
“Meanwhile, Fitch Ratings warned that the country’s negative sovereign credit outlook may indicate a possible downgrade in the first half, citing “the government’s revision of its fiscal deficit target to 3.2 per cent of GDP as evidence that dependence on commodities remains a key credit weakness for Malaysia.”
However, with the government revenue still outpacing that of operating expenditure to register a substantial operating surplus of RM8.8 billion in 2015, Affin Hwang Capital said the risk of Malaysia’s sovereign rating being downgraded is small as international rating agencies are likely to consider government’s further efforts to bring down fiscal deficit, especially with the introduction of the Goods and Services Tax (GST).
“Furthermore, with the earlier set up of the Fiscal Policy Committee, we believe the management of fiscal policy will likely be reinforced further, where the Government will continue to introduce measures on fiscal consolidation.”
The announcements were also largely in line with CIMB Investment Bank Bhd’s (CIMB Research) expectations as it “had always known that the government had policy space to manoeuvre.”
“Our initial analysis flagged risks of fiscal slippage, but we felt that the government will best manage these risks in view of the financial implications and impact on the ringgit,” it outlined in a separate note.
While it concurred that a current account surplus is still achievable this year, CIMB Research said there were risks particularly if prices of crude palm oil (CPO) and liquefied natural gas (LNG) retrace downwards from the second quarter onwards.
“The degree of compression of the current account surplus lies in the exports of CPO and LNG which account for a larger share of of Malaysia’s trade surplus,” it explained. “There are potential risks to financial stability if oil prices sustain at low levels and the risks become material if they breed contagion.
“However, we think that Malaysia is in a fundamentally stronger position to manage the contagion risks and direct spill-overs to the real economy.”
On this point, Maybank Investment Bank Bhd (Maybank IB Research) said the new revenue measures implied “sticky” Petronas dividend to the Federal Government plus enhancement in non-oil revenues.
“At the revised US$55 per barrel crude oil price forecast for 2015, oil-related revenues are RM13.8 billion lower than Budget 2015’s projection of RM62.4 billion that was based on US$100 per barrel assumption.
“This is smaller than recent Petronas’ guidance of a RM21 billion shortfall that assumed crude oil price at US$70 to US$75 per barrel, indicating Petronas dividend to the government is likely to be ‘sticky’, unlike other components of the oil-related revenues.
“In addition, as we argued in our above-mentioned note and during marketing to clients, the government has room to enhance non-oil revenues as per the additional GST revenue of at least RM1 billion to the prior Budget 2015’s projection of RM23 billion following the better than expected business registrations for the tax, as well as the additional RM400 million dividends from government linked companies and government linked funds.”
Analysts with Affin Hwang Investment Bank Bhd (Affin Hwang Capital) believed the projected lower budget deficit can be achieved, but cited risks that the country’s budgetary position could expand due to possible shortfall in tax revenue receipts – especially from direct taxes – as the external environment remains uncertain.
“We estimated earlier that the fiscal deficit will widen slightly by 0.3 percentage points to 3.3 per cent of GDP in 2015,” it highlighted in a note yesterday.
“Meanwhile, Fitch Ratings warned that the country’s negative sovereign credit outlook may indicate a possible downgrade in the first half, citing “the government’s revision of its fiscal deficit target to 3.2 per cent of GDP as evidence that dependence on commodities remains a key credit weakness for Malaysia.”
However, with the government revenue still outpacing that of operating expenditure to register a substantial operating surplus of RM8.8 billion in 2015, Affin Hwang Capital said the risk of Malaysia’s sovereign rating being downgraded is small as international rating agencies are likely to consider government’s further efforts to bring down fiscal deficit, especially with the introduction of the Goods and Services Tax (GST).
“Furthermore, with the earlier set up of the Fiscal Policy Committee, we believe the management of fiscal policy will likely be reinforced further, where the Government will continue to introduce measures on fiscal consolidation.”
The announcements were also largely in line with CIMB Investment Bank Bhd’s (CIMB Research) expectations as it “had always known that the government had policy space to manoeuvre.”
“Our initial analysis flagged risks of fiscal slippage, but we felt that the government will best manage these risks in view of the financial implications and impact on the ringgit,” it outlined in a separate note.
While it concurred that a current account surplus is still achievable this year, CIMB Research said there were risks particularly if prices of crude palm oil (CPO) and liquefied natural gas (LNG) retrace downwards from the second quarter onwards.
“The degree of compression of the current account surplus lies in the exports of CPO and LNG which account for a larger share of of Malaysia’s trade surplus,” it explained. “There are potential risks to financial stability if oil prices sustain at low levels and the risks become material if they breed contagion.
“However, we think that Malaysia is in a fundamentally stronger position to manage the contagion risks and direct spill-overs to the real economy.”
On this point, Maybank Investment Bank Bhd (Maybank IB Research) said the new revenue measures implied “sticky” Petronas dividend to the Federal Government plus enhancement in non-oil revenues.
“At the revised US$55 per barrel crude oil price forecast for 2015, oil-related revenues are RM13.8 billion lower than Budget 2015’s projection of RM62.4 billion that was based on US$100 per barrel assumption.
“This is smaller than recent Petronas’ guidance of a RM21 billion shortfall that assumed crude oil price at US$70 to US$75 per barrel, indicating Petronas dividend to the government is likely to be ‘sticky’, unlike other components of the oil-related revenues.
“In addition, as we argued in our above-mentioned note and during marketing to clients, the government has room to enhance non-oil revenues as per the additional GST revenue of at least RM1 billion to the prior Budget 2015’s projection of RM23 billion following the better than expected business registrations for the tax, as well as the additional RM400 million dividends from government linked companies and government linked funds.”