Malaysia's Q1 fiscal deficit lowest in previous five years, says Nomura

KUALA LUMPUR: Malaysia's fiscal deficit of RM11.2bil in Q1 of 2018 or 3.3% of gross domestic product (GDP) was well below Nomura Global Economics Research's 6% forecast.

It said on Thursday this was smaller than any of the Q1 deficits in the previous five years. 

“On a seasonally adjusted basis, the fiscal deficit narrowed in Q1 from Q4, by our estimates,” it said, commenting of the monthy fiscal data published by Bank Negara Malaysia.

Nomura Research said revenue collections appear to have exceeded expectations significantly, surging by 16.5% on-year in Q1, likely boosted by higher oil prices and possibly some lagged effect from strong GDP growth last year.

“However, more surprisingly, spending appears to have been quite restrained, falling by 2.0% despite the general election on May 9,” it said. 

The research house said though spending details have yet to be released, such restraint may prove temporary with the government likely concentrating the use of its fiscal firepower closer to election day. 

“This likely explains the government’s confidence in maintaining its 2018 deficit target of 2.8% of GDP despite announcements of additional cash handouts around the election.

“While we continue to expect government spending to spike in Q2, the surprising outturn in Q1 suggests fiscal tightening in H2 may be less severe than we currently forecast,” it said.