No breathing room in Putrajaya’s quest to cut deficit, HSBC says

Multinational bank HSBC says Putrajaya needs a combination of massive political will, hard work and even good fortune to achieve its aim, and is unlikely to improve on last year’s deficit target if these factors do not go its way. ― File pic
Multinational bank HSBC says Putrajaya needs a combination of massive political will, hard work and even good fortune to achieve its aim, and is unlikely to improve on last year’s deficit target if these factors do not go its way. ― File pic

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KUALA LUMPUR, Jan 22 ― Putrajaya faces a daunting task in trying to cut its fiscal deficit to 3.2 per cent of gross domestic product (GDP) as any deterioration in economic conditions will cause it to fall short, multinational bank HSBC said today.

The world’s second-largest bank said Putrajaya needs a combination of massive political will, hard work and even good fortune to achieve its aim, and is unlikely to improve on last year’s deficit target if these factors do not go its way.

“Our estimates suggest that achieving the new fiscal target will require a challenging combination of political will to reduce operational spending, efficient implementation of PM Najib’s proposed economic measures, as well as stability of global macroeconomic conditions.

“In short, there is not much wiggle room,” HSBC’s Asean economist Lim Su Sian said in a report.

Prime Minister and Finance Minister Datuk Seri Najib Razak announced revisions to Budget 2015 on Tuesday, saying the original drawn up when crude oil hovered above US$110 (RM397) per barrel was no longer realistic as its price has fallen below US$50 per barrel.

Najib amended the deficit target for 2015 to 3.2 per cent of GDP, up from the original 3.0 per cent, but said this would have risen to 3.9 per cent without the intervening measures.

Lim explained that the new target could only be reached if all three following conditions were fulfilled: Putrajaya garnering an additional RM1.4 billion revenue, keeping its promise to cut RM5.5 billion in operating expenditure, and state-owned Petronas maintains its dividend contribution between RM27 and 30 billion.

“Slippage on any of these fronts, and the government will likely be missing its target by at least 0.2 to 0.3 percentage points, meaning almost no improvement in fiscal balances compared to 2014,” the report suggested.

Keeping operating spending low will be the hardest of the three conditions, it said, as an overhaul required “a significant degree of collective political will” among government officials.

In addition, it claimed that process involving transfers and grants to state agencies, civil service spending on overseas travel, and procurement of assets can often rank low on the transparency scale.

HSBC also remained cautious whether Putrajaya can sufficiently improve companies’ participation in GST in order to boost revenue by RM1 billion more.

It was less concerned about Petronas’ dividend, however, after Treasury Secretary-General Tan Sri Dr Mohd Irwan Serigar Abdullah told state news agency Bernama that it “will be slightly lower, but not that much”, as the amount will be calculated based on last year’s oil price.

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