Fiscal deficit widens in first five months

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KUALA LUMPUR: Malaysia’s fiscal deficit widened to RM30.5 billion for the first five months of the year, compared with RM26 billion in the previous corresponding period.

This, Citi Research said in its latest economic review on Malaysia, was largely due to a surge in government spending.

Edgemarkets quoted Citi Research vice-president Kit Wei Zheng as saying that the larger deficit partly reflected a larger shortfall in revenue relative to spending.

He said revenue fell 0.9% year-on-year during the first five months, compared with targeted full-year growth of 3.4%.

Kit was quoted as saying in the report: “After spending fell behind target in the first four months (-0.6% y-o-y versus budget target of +2.2%), a 22.3% spending surge in May brought year-to-date spending up 3.5%, above target.

“1Q17 (first quarter 2017) data suggest that spending has been clearly diverted towards areas with bigger political and growth ‘bang for the buck’.”

Excluding the growth-insensitive components, he told Edgemarkets, Malaysia’s fiscal position would drop from a surplus of RM2.5 billion in 2016 to a deficit of RM500 million in 2017.

“With fears over fiscal slippage likely to become a larger constraint, the persistence and magnitude of fiscal expansion will hinge critically on the timing of the general election, which is due by mid-2018,” said Kit.

He said the general election could be held in September or October this year if the Barisan Nasional (BN) wanted to “seize the opportunity of a fractured opposition, the ‘feel-good’ factor following the SEA Games in August and the recent outperformance of the local stock market”.

According to Kit, a successful early election in tandem with the recovery in crude oil prices would make it easier for the finance ministry to achieve its targeted average deficit of 2% to 2.5% of gross domestic production between 2017 and 2019.

The Edgemarkets quoted him as saying that the “severely weakened state of the opposition” suggested that issues such as the rising cost of living and troubles at Felda Global Ventures were unlikely to result in a loss for the BN.

However, he felt they did reduce the chances of regaining the two thirds parliamentary majority, unless more time could be bought to resolve these issues.