OCBC Bank cautious about Malaysia’s ability to lower deficit

KUCHING: OCBC Bank’s Treasury Research (OCBC Bank) has highlighted its concerns on Malaysia’s ability to achieve a lower budget deficit of 2.8 per cent of gross domestic product (GDP) into 2018, following the announcement of Budget 2018.

According to OCBC Bank’s Barnabas Gan, the generous budget allocation of RM280.25 billion is the largest allocation ever given in history, even surpassing the previous pre-election budget at 2013 of RM252 billion.

“With the many incentives to be given throughout the economy, the budget is likely to be seen as expansionary for the Malaysian economy, both in promoting investment and trade, as well as from concrete fiscal spending plans in infrastructure,” Gan said.

Moreover, with the strong upgrade in GDP growth to 5.2 to 5.7 per cent in 2017, and fresh GDP estimate of five to 5.5 per cent in 2018, OCBC Bank believed that the better growth prospect will continue to aid in lifting both domestic and international confidence levels into 2018.

“However, we are cautious about Malaysia’s ability to achieve a lower budget deficit of 2.8 per cent of GDP into 2018.

“Our concern stems from the lack of details over Malaysia’s revenue collection plans into the next year. GST has been one of the key revenue drivers in recent years, on top of individual tax receipts.”

That said, Gan noted both revenue streams have seen tax cuts and/or tax reliefs in one form or the other, which in turn could potentially reduce tax receipts into 2018.  He further noted that the only hope for higher revenue receipts must stem from economic-led ones, including that of corporate tax receipts, petroleum tax receipts, stamp duties, as well as export and import duties.

“These receipts will invariably increase given the uptick in growth prospect into the next year,” Gan said.

Overall, while the mainstay outlook is for Malaysia’s growth to expand further into 2018, Gan pointed out that any unforeseen wildcards that could derail growth, including a sudden fall in oil prices and deterioration of investor appetite, could well worsen Malaysia’s fiscal standing then.

“But for now, the generous allocation given to both operating and development expenditure will surely be growth expansionary,” he added.

“To that end, while we keep our Malaysia’s growth outlook at 4.9 per cent in 2017, we think that our initial 4.9 per cent growth outlook into 2018 will see significant upside risk then especially given the stimulus support from today’s Mother of all Budgets.”

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