Analyst: Budget 2014 to focus on balanced, sustainable growth

Published: Tuesday September 24, 2013 MYT 12:00:00 AM 

Updated: Tuesday September 24, 2013 MYT 4:56:04 PM

BY FINTAN NG FINTAN@THESTAR.COM.MY

PETALING JAYA: The overarching issue of balancing spending over revenue will dominate discourse on Budget 2014 as the Oct 25 date for the tabling of the supply bill gets nearer.

While not a new issue, the Fitch Ratings downgrade of Malaysia’s sovereign credit outlook to “negative” from “stable” on June 30 would continue to shadow news and research reports on the budget until the day the bill gets tabled.

CIMB Investment Bank Bhd economic research head Lee Heng Guie said this budget would be “a question of credibility and getting priorities right.”

He considers this budget to “be a watershed moment for Malaysia, as it embarks on bold fiscal reforms and economic restructuring to ensure sustainable and balanced economic growth ahead.”

Among the measures to be taken, analysts point to a broadening of the tax base (the goods and services tax or GST) and reforming the system of subsidies.

Besides these measures, they said other measures with a long-term impact to be considered included a restructuring of the economy away from a dependence on oil and gas revenues as well as in the mid-term, a sequencing of large infrastructure projects with high import content and low economic benefit.

However, despite the Government’s move to raise RON95 petrol and diesel prices by 20 sen per litre respectively from Sept 3 and recent news of an impending revision of the electricity tariff, analysts remain cautious as to how far the Government would be willing to go, given the country’s political climate.

“The Government’s window to enact difficult and materially significant reforms is relatively short,” Moody’s Investors Service senior analyst Christian de Guzman toldStarBiz.

He said the failure to demonstrate the necessary resolve now would just make enacting such reforms even more difficult over the medium term, as the longer the delay, the closer to the next election it would be.

And given that the Barisan Nasional won the 13th general election with a weaker mandate, de Guzman said “the political considerations can only intensify from here.”

He said the measures which the market hoped the Government would implement would only “help if the changes were material enough to contribute to higher government revenue (in the case of the GST) or lower subsidy spending (in the case of subsidy cuts for fuel or raising the electricity tariff).”

“Merely getting them passed may not be enough to effect meaningful fiscal consolidation,” de Guzman added.

Meanwhile, Lee said just how bold or sustainable the reforms would be depended on a credible set of budget targets, which included gross domestic product (GDP) growth, the budget deficit, revenue and expenditure based on realistic economic assumptions and reasonable forecasts.

He said the Government should also control the rise in contingent liabilities (government-guaranteed loans) by monitoring the progress of public-private partnership projects and reducing the financial burden on the Federal Government’s budget in the areas of grants, investment support and guaranteed loans to government-linked companies and statutory bodies.

As at end-June, these loans stood at RM147.3bil or 15.7% of GDP compared with RM143.1bil or 15.2% as at end-2012.

Lee said priorities would have to be set between growth and fiscal sustainability. “Faced with fiscal constraints and the risk of sovereign rating downgrades, the Government must bite the bullet now to ensure long-term gains,” he added.