By Sherilyn Goh
The adjustment to Budget 2016 is expected to be minor, with neutral to slightly positive impacts to the market as the government adopts a pragmatic approach to reflect recent developments in the global economic conditions and to address external headwinds, predicted HLIB Research.
“Unlike the previous revision to Budget 2015 a year ago, we expect the tweaks to be marginal, focusing mainly on a reduction in operating expenses. We expect the government to further cut grants and transfers to statutory bodies while fine-tuning its remaining subsidy programmes,” said HLIB in its research note published today.
The research house estimates a reduction between 2% and 3%, which is estimated to translate into a budget cut ranging from RM4 billion to RM6 billion. The trim in allocation for subsidy programmes is however expected to not affect that of Bantuan Rakyat 1Malaysia (BR1M), the government’s cash aid programme to households falling under the lower-income group.
A total of RM215 billion were allocated for operating expenditure in Budget 2016. HLIB Research adopts the view that there will be no change to the development expenditure of RM50 billion allocated in Budget 2016. It however noted that the sequencing of projects could be re-prioritised to reflect the current economic conditions.
Prime Minister Najib Abdul Razak will be chairing a fiscal policy committee meeting this month to revise Budget 2016, which he was earlier quoted as saying that much has changed since it was tabled in October last year.
Fiscal deficit target to remain intact
Several analysts believe government finances is currently under pressure, as it struggles to meet its 2016 fiscal deficit target of 3.1% of GDP – down from 3.2% last year – which is dependent upon GDP growth at and above 4.5% and oil prices averaging US$48 per barrel.
As of last week, Brent settled 20 cents lower at US$33.55 per barrel. It hit a session low of US$32.78, after sliding on Thursday to US$32.16, the lowest since April 2004, according to Reuters.
In relation to the prospective revision to Budget 2016, HLIB Research expects the government to be able to meet its broad macro targets, as higher revenue collection from the Goods and Services Tax (GST) is expected to offset lower oil-related revenue.
For 2016, the research house expects a strong GST revenue of RM46 billion, higher than the official estimated collection of RM39 billion.
“We do not expect a heavy sell-down as investors are now more comfortable with the macro fundamentals. Malaysian authorities have already proven that various macro policies (pertaining to) GST and foreign exchange have worked favourably for the country to safeguard growth momentum,” it added.
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