Malaysia’s 2017 fiscal deficit to improve to 3.0pc, Fitch unit predicts

KUALA LUMPUR, March 13 — BMI Research commended Putrajaya today for its ongoing efforts to curb government spending through further subsidy cuts despite continued opposition and political risk with general elections on the horizon.

The Fitch Group unit predicted that if the trend continues, Malaysia will be able to strengthen its fiscal position to 3.0 per cent of its GDP this year compared to 3.1 per cent in 2016.

“The Malaysian government's ongoing efforts to curb expenditures through the reduction of subsidies appear to be taking effect, with the amount being spent on subsidies on a gradual downtrend.

“We believe that the further reduction of subsidies in the 2017 budget will be positive for the government's fiscal position,” it said in a statement.

It noted that the government has made savings from spending on subsidies since rolling out the rationalisation programme seven years ago, with the latest figures showing just RM3.7 billion on subsidies in the third quarter last year compared to RM17.5 billion in the last quarter of 2013.

BMI noted the recent removal of cooking oil subsidies from Budget 2017 and the government’s firm stance against reintroducing sugar subsidies removed four years ago “despite protests by various political parties”.

It also noted the government has been working to improve the Goods and Services Tax (GST) to reduce leakages and said this move, together with the recent recovery of global oil prices will boost its revenue.

“Despite initial difficulties, GST collection has started to gain traction, and we believe that the government's various programmes aimed at plugging the leaks in the GST system will help it maximise collection,” BMI said.

Together with the government’s new education programmes and upgrades to its computer systems to handle GST collection, the research group said these were “positive” moves to generate income.

BMI also said it expects more positive things in store for the country’s revenue as global oil prices improve, even though the government is making an effort to reduce reliance on fossil fuel.

Malaysia is the world’s second-largest exporter of natural gas but had faced a decline in liquefied natural gas exports last year, which saw its revenue contribution fall to just under 15 per cent from 30 per cent previously.