Risk of Malaysia's fiscal slippage remains limited, says Nomura

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KUALA LUMPUR: Nomura global markets research expects the risk of fiscal slippage by remains limited despite that the year-to-date Malaysia's fiscal deficit reached RM34bil as of June as revenue collections grew slower during the period compared with a year ago.

It said on Wednesday the RM34bil deficit was within striking distance of the RM40.3bil full-year target in the budget and, therefore, casting some doubt on the fiscal consolidation agenda 

“However, in our view, the experience last year suggests the risk of fiscal slippage remains limited,” it said. 

Nomura Research still expected Malaysia to meet its 2017 fiscal deficit target of 3% of GDP despite the H1 overshoot. 

“Like last year, we believe the government will achieve significant fiscal consolidation in H2 2017 but do not expect this to have a sizeable negative impact on growth, which has received stronger support from the export sector,” it pointed out. 

Nomura Research also said monthly government revenue data suggested revenue collections rose by just 0.8% on-year in H1 against a 3.4% increase projected for the full year in the budget.

It said the Ministry of Finance’s (MOF) quarterly update on Malaysia’s economy for Q1, 2017 suggested this was partly because petroleum income tax collections in Q1 – which fell by 61.1% – were based on crude oil prices in the second half of 2016 (Brent: US$49 a barrel) and had not yet reflected the 2017 pick up in oil prices (US$52 year-to-date). 

“Individual income tax and goods and services tax (GST) collections also declined in Q1 despite robust GDP growth of 5.6%, which may be related to the timing of collections. 

“However, there were signs of restraint in total net expenditures (operating and gross development expenditures less loan recoveries) which rose by 1.6% on-year in H1,” the research house said.