Credit Suisse expects Malaysia to meet budget deficit

Finance Minister Lim Guan Eng

KUALA LUMPUR: With Finance Minister Lim Guan Eng's assurance that target budget deficit of 2.8% of GDP will be met, it may sooth concerns over bond and currency stability and possibly lead to a reverse in flows, according to Credit Suisse.

Credit Suisse analyst Danny Goh rote in a report on Monday that there was RM5.6bil worth of foreign selling since the 14th General Election 14 (mostly passive money) and year-to-date, net foreign outflows amount to RM1.9bil.  This is reflected in the 6% drop in the KLCI since GE 14.

“We believe the sell-off is due to concerns over (1) adverse impact of election promises on the government's fiscal position and threat to the sovereign credit rating, (2) government's ability to cope with the 'true' debt of RM1 trillion, (3) uncertainty over infrastructure projects, (4) sanctity of concession agreements,” he said in the report. 

With the Pakatan Harapan government expected to raise RM5bil of additional dividends from Khanzanah, BN and Petronas, Goh believes there will be more pressure on GLCs to step up dividend payments. 

“Based on a screen of Khazanah controlled companies, the Malaysia team finds CIMB, Axiata, MAHB and Tenaga having scope to raise dividend payments. 

“There could also be pressure on PNB (Permodalan Nasional Bhd) to step up as well should other government-linked companies peers become more disciplined on capital management. Maybank, Sime and Sime Prop also have scope to step up dividend payments,” he said.

He said Credit Suisse was looking out for newsflow on that could re-rate the market such as : (1) details on plans to reduce the RM1tril government debt, (2) more clarity on infrastructure projects reviewed, (3) assurance that toll road concessionaires will be fairly treated. Any business-friendly policies would also help investor sentiment.