PETALING JAYA: Finance Minister Lim Guan Eng (pix) has reiterated that the government is confident of achieving its fiscal deficit target of 3.7% and 3.4% of gross domestic product (GDP) in 2018 and 2019 respectively and pooh-poohed Nomura’s report released on Wednesday.
“I have checked the preliminary financial accounts that were closed last year and the government’s fiscal position is well within the 3.7% of GDP deficit target for 2018,” he said in a statement today.
Nomura’s report warned that Malaysia’s 2018 fiscal deficit could deteriorate to 3.9% of GDP, which Lim said is “simply untrue” as sales and service tax (SST) collections have exceeded the initial projection by 34% at RM5.4 billion compared with the projected figure of RM4 billion.
Lim said the government has been upfront that the fiscal reforms would take three years to complete and more measures are to be announced for 2020, in addition to the measures announced in Budget 2019.
“The government has conveyed the same message on the time required to complete the reforms to various parties, including the top credit rating agencies Fitch Ratings, Moody’s and S&P. All three credit ratings agencies understand the amount of time required to carry out the reforms and, as a result, they have maintained the government’s credit ratings at ‘A3’ or ‘A-’, especially when the current government has been more transparent about its fiscal position and financial obligations than the previous administration,” he explained.
Responding to Nomura’s concern over the widening of the fiscal deficit ratio due to volatile crude oil prices, Lim said apart from the RM30 billion special dividend from Petroliam Nasional Bhd (Petronas) needed to partially finance the payments of unpaid goods and services tax and income tax refunds, the estimated government’s dependence on petroleum income this year is only 19.5%.
This is in contrast to 2009 where petroleum revenue made up of 41.3% of government income, suggesting that it has become less important to public finance.
“Analysts should take the low energy prices within this context, as well as the fact that the government is introducing new measures like the soda tax and the sale of non-core, non-strategic assets that are not accounted for in the fiscal deficit numbers, as highlighted in the 2019 Budget documents available publicly and online. These additional measures will be enough to function as a comfortable buffer if the average Brent crude oil prices hover within the US$50-US$70 per barrel band,” he said.
Lim highlighted that Nomura’s concern over the political stability of the government is misplaced and overdone as it ignores recent developments which indicate political stability in Malaysia.
Nomura said it was hoping for more progress in areas to improve government efficiency, reduce corruption and crony capitalism and potentially roll back or ease the government’s presence in some areas but has only seen some “easier” initiatives such as closing of several government agencies while some agencies have been put under direct parliamentary supervision.
The research house has downgrated Malaysian equities to “underweight” from “neutral” due to what it said were due to poor fundamentals and lack of major expansionary reforms.
Source: The Sun Daily