PM: New fiscal deficit for 2015 at 3.2% (Update)

KUALA LUMPUR: The Prime Minister said the new fiscal deficit for 2015 for the revised Budget is at 3.2%, which was slightly higher than the 3% set in the Budget 2015 proposals announced in October last year.

In his special address on the current developments and government’s financial position, Datuk Seri Najib Tun Razak (pic) announced specific and proactive measures to align the country’s economy with the recent global economic developments. 

“We are not in crisis. Indeed, we are taking preemptive measures following the changes in the external global economic landscape which is beyond our control,” he said.

Najib said the government also revised the economic forecast for 2015 to between 4.5% and 5.5%. This was lower than the target of 5% to 6%.

He said that Budget 2015 was formulated based on strong economic fundamentals in 2014. 

“Therefore, the fiscal deficit was forecast from 3.5% in 2014 to 3% of GDP in 2015. However, the external situation has changed lately and we are impacted directly as Malaysia is among the largest trading nations in the world,” he said. 

Najib said compared to the situation a few months ago, the global economic landscape has since changed significantly. Hence, there was a need to review and clarify some of the earlier macro and fiscal assumptions. 

He added the development expenditure remains at RM48.5bil while the operating expenditure was cut by RM5.5bil.

Najib said the government would also increase dividend payments from the government linked companies (GLCs) and government investment linked companies (GLICs).

He added the electricity and gas price review for 2015 had also been postponed.

He pointed out that over the last six months, global crude oil prices have plunged more than 50%, among others, due to oversupply amid weak demand. 

Najib added if crude oil price remains at US$100 per barrel, the Government will be able to accommodate all the measures announced in Budget 2015 with the fiscal deficit target not exceeding 3% of GDP. 

“However, at the forecast price of US$55 per barrel, there will be a revenue shortfall of RM13.8bil. 

“If we compare the revised figures with Budget 2015 tabled in October last year, despite the savings of RM10.7bil from the implementation of the managed float mechanism for retail fuel prices, the government still faces a revenue shortfall of RM8.3bil to accommodate the 2015 Budget measures,” he added.

On the ringgit, he said the fluctuations were influenced by developments in the global economy. 

He added the ringgit was not the only currency to have weakened against the US dollar. In fact, almost all currencies in the region have softened against the US dollar since September 2014. 

 The recent volatile capital flows and significant depreciation of the ringgit were also due to concerns over the impact of the sharp fall in oil prices on the Malaysian economy. 

“In relation to this, we must closely monitor the following: First, the current account in the balance of payments must remain in surplus. Second, continue with fiscal reforms and consolidation and Third, economic activity must be further diversified to enable us to cope with falling crude oil and commodity prices. 

“The government is confident that the exchange rate will over time adjust to reflect the strong economic fundamentals. Of importance, our financial system continues to function in an orderly manner,” he said. 

Najib pointed out that most importantly, there has been no disruption to financial intermediation, with lending activities continuing smoothly. Businesses continue to have access to financing from banking institutions and the capital market. 

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