ZCZC
BCN-26
MALAYSIA-BUDGET-DEFICIT
Malaysia’s budget deficit remains manageable: research house
KUALA LUMPUR, May 28, 2018 (BSS/Xinhua) – The Malaysian government may see
a successful transition from the goods and services tax (GST) to Sales and
Services Tax (SST) without widening the budget deficit too much, supported by
higher oil revenue and lower expenditure, said a research house Monday.
RHB Research Institute said in a report, while the move to zero-rated GST
next month onward will lead to a huge revenue loss to Malaysia, the fast-
tracking of the SST re-implementation, higher oil prices and potential cuts
in expenditure may bring this loss to a more manageable 1.7 billion ringgit
(427 million U.S. dollars), or 0.1 percent of the country’s gross domestic
product (GDP).
“This may result in a budget deficit of 2.9 percent of 2018 forecast GDP,
versus 2.8 percent presently, if our assumption on the cut in government
expenditure and the timing of the SST implementation comes through,” it said.
The research house opined that the new Malaysian government has so far
shown it has the will to cut a substantial part of expenditure, since it has
gone to the extent of terminating contract staff and dissolving “non-
essential” departments.
According to its calculation, the loss of GST revenue is expected to lead
to a revenue loss of 25.6 billion ringgit (1.8 percent of GDP) and the
reintroduction of fuel subsidy and civil servants pay hike are likely to
cause some revenue falls of 3 billion ringgit (0.2 percent of GDP) and 1.5
billion ringgit (0.1 percent of GDP) respectively.
However, oil revenue from higher oil prices and SST reintroduction are
projected to add 6 billion ringgit (0.4 percent of GDP) and 7.5 billion
ringgit (0.5 percent of GDP) to the country’s coffer. The cuts in operating
and development expenditure may save up to 14.9 billion ringgit, which is
equivalent to 1 percent of GDP.
RHB Research believed, the key to achieve Malaysia’s deficit target lies
in whether the country’s government is able to cut a substantial part of
expenditure.
While the government has indicated that it will terminate 17,000 political
appointees from the workforce, and ministers’ salaries would be cut by 10
percent, the research house opined that the savings are not expected to be
very large.
Thus, it believed the government may look into other areas such as
subsidies, which account for 11.3 percent of the country’s operating
expenditure (OE); supplies and services (14.4 percent of OE) and other
expenditure (7.2 percent of OE).
All in, the government may able to cut its operating expenditure by 11.9
billion ringgit, it said.
The research house also believed the development expenditure is another
area that the government may look into in terms of cutting expenditure, which
may amount to 3 billion ringgit.
“This implies that the government may cut its total expenditure by 14.9
billion,” it added.
However, in a worst-case scenario, if nothing is done to reduce other
expenditure, the budget deficit of 2.8 percent of GDP projected for 2018 may
balloon to 4 percent of GDP, it said.
BSS/XINHUA/HR/1405