25/10/2017 (The Star Online) - PETALING JAYA: Every year from around the start of October, the media carries stories on the annual tabling of the Federal Government’s budget to inform and get a feel for what the ground needs.

Many people struggle to make sense of the reams of information from the news reports and expert opinions, especially on the economy, that come out over the weeks prior to the tabling of the budget, usually on the last Friday of October.

The information and stories include what will be published in the Economic Report, which lays out the state of the economy for the current year and forecasts for the coming year.

The budget showcases the Federal Government’s initiatives and measures for the upcoming fiscal year. Information from the Economic Report will be made public as the budget is being tabled.

People should look out for economic growth projections measured by gross domestic product (GDP), inflation, oil price assumption for the budget, crude palm oil (CPO) forecast, operating and development expenditures, budget deficit,debt-to-GDP and contingent liabilities, infrastructure projects, exports performance and the current account trend.

AllianceDBS Research chief economist Manokaran Mottain said Budget 2018 would see the introduction and expansion of initiatives to support private consumption growth, while maintaining the commitment towards fiscal consolidation.

According to him, the Government will likely set a growth target of at least 5% for 2018 vis-a-vis the projected range of 4.3% to 4.8% GDP growth for 2017.

The Government will also likely revise the 2017 growth projection, following an impressive performance of 5.7% GDP growth in the first half of this year, thanks to improved conditions both domestically and externally.

Inflation remains a concern, as it will drive up the cost of living and cap consumer spending in the country. For 2017, inflation, as measured by the rise in the consumer price index (CPI), will likely be in the range of 3% to 4%.

The Government will likely project CPI to be below 4% next year.

Improving global crude oil prices, an important contributor to the Government’s revenue stream, will be good news, as this would mean more income from petroleum-related taxes and dividend income from Petroliam Nasional Bhd.

Revenue projections could rise for Budget 2018 on higher crude oil prices when compared with the oil price assumption of US$45 per barrel for this year.

Because the general election will be held next year, economists expect spending to be ramped up. Operating expenditure will likely increase on higher civil servant increments and bonuses in addition to other goodies, while development expenditure to support economic growth will also be expected to increase on the implementation of various infrastructure projects.

Manokaran expected development expenditure allocated for next year to accelerate the implementation of ongoing infrastructure projects such as the East Coast Rail Line, the Pan-Borneo Highway, the Kuala Lumpur-Singapore high-speed railway, the Mass Rapid Transit Line 2, and the Light Rail Transit Line 3. Such spending will benefit construction companies.

Despite increased expenditure, economists said the Government would likely remain on track with fiscal consolidation.

For Budget 2018, Manokaran expected budget deficit to be lowered to 2.8% of GDP, compared with the projected 3% of GDP in 2017, thanks to higher revenue.

Manokaran said Budget 2018 would include measures to contain government indebtedness below the self-imposed limit of 55% of GDP. He expected government debt-to-GDP to be contained within 53% of GDP for this year.

Meanwhile, the Government’s contingent liability level will remain steady at around 15% of GDP next year, as it has been since 2013, despite the increase in the infrastructure bill.

Malaysia’s standing as the second-largest producer of CPO means that the Government’s projections for CPO prices will also be closely watched because this will have an impact on export revenue.

Manokaran expected prices to remain range-bound next year compared with the estimated average of RM2,500 per tonne this year.

Given the country’s reliance on exports, an improving external trade landscape driven by demand for manufactured products next year would mean higher exports growth compared with the 2.5% growth this year, he pointed out.

Lastly, Malaysia’s current account surplus next year is expected to improve marginally on expectations of higher surplus in the goods account.

The Government has projected the country’s current account surplus to narrow to around 0.5% to 1.5% of gross national income (GNI) in 2017 from 1% to 1.5% of GNI in the preceding year on lower surplus in the goods accounts and continued deficit in the services and income accounts.