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Friday, November 1, 2013

MARC: 2014 GDP forecast 'realistic'

Posted on 25 October 2013 - 10:33pm

PETALING JAYA (Oct 25, 2013): Malaysian Rating Corp Bhd (MARC) is positive on the long-delayed implementation of goods and services tax (GST) although the rate of 6% is above its expectation.

"This goes a long way towards addressing some of the economic distortions and inefficiencies under the current sales and service tax system, which has been in operation since the 1970s," it said in a statement today.

"We also welcome the measures to cushion the impact of GST on the low income groups," it added.

The local rating agency believes that the real gross domestic product (GDP) expectation of 5%-5.5% in 2014 is "realistic" and expenditure target for next year is "reasonable although revenue forecast is on the low side".

"We expect nominal GDP to rebound in 2014, especially if global trade improves. From a technical standpoint, the trajectory of nominal GDP would be more critical for the government to achieve its goal of capping the deficit to 3.5% and reducing the debt-to-GDP ratio to less than 55%," it said.

"We have already seen nominal GDP growth slowing this year, which we think was partly the reason for the quick response in cutting fuel subsidies when global oil prices rose in August/September.

"If global economic conditions and commodity prices remain bumpy next year, we could see more pressure on government finances, even if real GDP remains on track," it added.

MARC noted that Budget 2014 had the unenviable task of walking a tightrope between fiscal probity and addressing the concerns of the Rakyat over the higher cost of living.

"Most of the major measures announced such as the GST had already been signaled by the government well in advance of today's tabling of the budget in Parliament.

"Measures to strengthen the fiscal position are a step in the right direction in order to solidify the foundation of the economy going forward, while measures to cushion the impact on the Rakyat are meant to ensure the needy will not be burdened by the fiscal consolidation efforts," said MARC.

The rating agency is also encouraged by the government's proposal to increase the limit of the minimum price of properties that can be bought by foreign buyers as well as construction of more affordable homes for lower- and middle-income households, which addresses the situation on the supply side.

"On the whole, given the constraints, this budget manages this feat pretty well," said MARC.

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