Economist sees small miss in fiscal deficit target

Publication: NST

Date of publication: Oct 25, 2013

Section heading: Business Times

Page number: 004

Byline / Author: By Rupa Damodaran

KUALA LUMPUR: Malaysia is likely to see a small miss in the four per cent fiscal deficit target, given the weaker growth and rising financing costs, said an economist.

Dr Chua Hak Bin said the fiscal deficit is tracking four per cent of gross domestic product (GDP), based on January-August data and by Bank of America Merrill Lynch estimates.

"This is an improvement from the 6.4 per cent deficit in the first quarter," he said.

The research house expects the 2014 Budget to target a 3.5 per cent GDP fiscal deficit in 2014 and three per cent in 2015.

"We expect the government to forecast a lower GDP growth of 4.5-5.5 per cent for 2014, given signs of a growth slowdown," Chua said, adding that there are mixed signals on whether Prime Minister Datuk Seri Najib Razak will deliver a budget that focuses on fiscal reforms and consolidation.

"New revenue-generating measures - including a consumption tax, fuel subsidy cuts and property taxes - are never popular and may invite protests. We expect the GST (goods and services tax) to be mentioned in the budget, but details may be lacking on the magnitude and timeline," Chua said.

There are hints that the GST may not be implemented under the 2014 Budget.

"The GST will have to be sufficiently large to make a visible fiscal impact. The government had estimated that a seven per cent GST could raise some RM25.7 billion (3.4 per cent of GDP)."

On the subsidy rationalisation, Chua expects another 20 sen or 10 per cent hike in subsidised fuel prices sometime in the second quarter and third quarter of next year.

As to the 55 per cent debt ceiling limit, Chua does not expect the budget to fully address it.

The government, he said, will be proceeding with the MRT project, and is keen to pursue the US$13 billion (RM41 billion) Singapore-Malaysia high-speed rail project.

Chua estimated that the transfer of some RM42 billion civil servant housing loans to banks may reduce the public debt ratio (by about 4.5 per cent of GDP) and buy time (probably one-and-a-half years) from testing the 55 per cent debt ceiling.

On the household debt, which has risen to about 86 per cent of GDP at end-second quarter from 80.5 per cent at end-2012, he said Malaysia might overtake South Korea as having the highest household debt ratio by early next year, at the current trajectory.