Non-savoury Budget 2015 measures a blessing in disguise

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KUCHING: Franklin Templeton Investments, Malaysia (Franklin Templeton) commends the government’s willingness and commitment to implement unpopular measures is to strengthen the country’s fiscal balance sheet.

In a press release, Hanifah Hashim, executive director/head Malaysia Fixed Income & Sukuk of Franklin Templeton, commented measures such as implementation of goods and services tax (GST) and further subsidy cut as seen by the recent hike in petrol prices early this month should help to put us in a better economic state.

She noted, this is, provided that the increase in revenue collection and savings from subsidies are redeployed in productive areas.

From the country’s macroeconomic perspective, Hanifah said, the government showed fiscal discipline and they look to be on track to achieve the deficit target of 3.5 per cent of gross domestic product (GDP) by end-2014 as the first half of 2014 (1H14) deficit has already come down to 3.7 per cent of GDP from 2013’s 3.9 per cent of GDP.

Of note, the long-term target is to achieve fiscal balance by the year 2020.

“Should our government maintain its fiscal discipline and implement key measures announced in this Budget, it will be supportive of our sovereign bond outlook by the international rating agencies.

“Besides, a stronger bond rating, and thus, lower yield will be welcomed by the issuers as they can tap the fixed income market at a lower interest rate,” she highlighted.

For the year ahead, Hanifah viewed, “We are expecting the next interest rate hike to come in 2015 instead of this year as the policy maker would want to see a healthier export number and consumption data before raising interest rate further.

“Interest rate spike in 2015 will be on the back of rising inflation rate as a result of GST implementation. In light of this, we are keeping to a medium duration portfolio positioning.

“We are also expecting the ringgit currency to strengthen ahead of the interest rate hike due its positive carry trade, barring any unforeseen major event in the market.”

Meanwhile, on the government’s efforts to ease the financial burden of the people, Hanifah opined that the increase of sustenance amount in BR1M handouts to the existing target group is a good move.

She explained, “There have been a lot of debates on the effectiveness of BR1M, but we believe the money put in their hands will eventually find its way to the economy.

“As the country move towards a domestic consumption-based economy, handouts like these help to increase private consumption, and hence, fueling the economic engine.

“Coupled with the implementation of targeted fuel subsidy programme that will most likely benefit the lower income group, this puts more disposal income in their hands, and in turn, more consumption in the economy.”