BUDGET 2019 was indeed a surprise for us, especially the analyst community, after so much anticipation and hoo-ha about the maiden budget from Pakatan Harapan.
It was supposed to set a backdrop for the economic policy going forward, en route towards a high-income nation by 2023.
While we were expecting a contractionary budget, what turned out is yet another expansionary budget. Still with persistent structural problems and ongoing reforms, we are overly encouraged by Budget 2019.
It’s a commendable job for the government to spearhead the economy with an expansionary budget, especially when the economy is slowing sharply amid domestic as well as global headwinds.
Resulting from the reforms in the first 100 days of the Pakatan government, it is inevitable for the government to incur a higher fiscal deficit. The government has guided that the fiscal deficit to widen from 3% of GDP to 3.7% of GDP in 2018, thereafter 3.4% in 2019.
The 11th Malaysia Plan (11MP) mid-term has already targeted the deficit to be back at 3% by 2020 – reflecting total commitment in government prudence and consolidation in expenditure.
The increase of RM13bil in deficit for 2018 (at RM53.3bil versus RM40.3bil in 2017), was mainly attributed towards additional tax refunds (RM4bil), as well as off-budget commitments and additional expenditure requirements (RM16bil), which was partly offset by higher dividend from Petronas (RM7bil).
In 2019, government revenue is estimated at RM261.6bil, which includes a one-off special dividend of RM30bil by Petronas. This has removed concerns of investors on raising funds via a global bond sale.
Meanwhile, total operating expenditure (OE) is estimated higher at RM259.9bil in 2019.
This is certainly market reassuring news that the government is cost-conscious and in the right direction to balance the budget deficit by 2023.
Of significance from the announcement is the government’s development expenditure staying steady at RM54bil in 2018-2019, despite the government’s recent announcement of a RM20bil cut in development expenditure during the rest of the 11MP period.
The steady spending should support growth in the coming years, especially at a time of volatilities from on-going US-China trade disputes and protectionist policies worldwide.
Although, the government is optimitic of slightly stronger growth of 4.9%, we would like to remain cautious with a conservative growth targeted at 4.5%, largely due to slowing global environment.
Manokaran Mottain is chief economist at Alliance Bank.